Helping Alabama Homeowners Face ForeclosuresMortgage Trust Holds pool of loans; issues certificates...

Helping Alabama Homeowners Face Foreclosures

June 2, 2016 Montgomery, Alabama

Trainers: Sara Bolling Mancini

Geoff Walsh

National Consumer Law Center®

ABOUT THE NATIONAL CONSUMER LAW CENTER®

Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for consumer

justice and economic security for low-income and other disadvantaged people, including older

adults, in the U.S. through its expertise in policy analysis and advocacy, publications, litigation,

expert witness services, and training.

Acknowledgements

We would like to thank the following for their generous support for this training program:

the Alabama Law Foundation, the Alabama Civil Justice Foundation, the Alabama Center

for Dispute Resolution, the Alabama State Bar Volunteer Lawyers Program, the Birmingham

Volunteer Lawyers Program, Legal Services Alabama, Madison County Volunteer Lawyers

Program, Montgomery Volunteer Lawyers Program, and the South Alabama Volunteer

Lawyers Program. Special thanks to Tracy Daniel for helping us to organize the event.

© 2016 National Consumer Law Center® - Materials included in this book cannot be copied or reproduced in any way

without the express written permission of NCLC®.

Presenter Biographies

Sarah Bolling Mancini is Of Counsel to the National Consumer Law Center and a staff attorney

in the Home Defense Program of the Atlanta Legal Aid Society, Inc. Sarah graduated from

Harvard Law School in 2007 and received a Skadden Fellowship for public interest work. She

clerked for the Honorable Amy Totenberg, U.S. District Court for the Northern District of

Georgia. Sarah has advocated for vulnerable homeowners facing predatory mortgage lending

practices and the threat of foreclosure in state court, federal court, and bankruptcy court. She

compliments her individual client representation with media outreach and policy

advocacy. Sarah is a co-author of Georgia Real Estate Finance and Foreclosure Law, Collier on

Bankruptcy, and NCLC’s Mortgage Lending, Foreclosures and Mortgage Servicing, and Truth

in Lending treatises.

Geoff Walsh is a staff attorney at NCLC who focuses on foreclosure prevention, consumer

bankruptcy, and other consumer credit issues. He has provided written testimony and engaged in

policy advocacy at the federal and state levels on the topic of foreclosure mediation. He has

served as a panelist and instructor at trainings and legal education seminars on foreclosure

prevention and bankruptcy topics. Geoff previously worked as an attorney with Vermont Legal

Aid, Inc. in Springfield, Vt. from 1991 to 2008, specializing in housing, consumer, and

bankruptcy areas. From 1980 to 1991, he worked as a staff attorney with Community Legal

Services, Inc. in Philadelphia, Pa., where he also specialized in housing and consumer litigation.

Geoff earned his B.A. from University of Michigan and is a graduate of Temple University Law

School. He is co-author of NCLC's Foreclosures and contributor to Consumer Bankruptcy Law

and Practice, Fair Debt Collection, Student Loan Law, and Credit Discrimination.

i

Helping Alabama Homeowners Face Foreclosures Montgomery, Alabama

June 2, 2016

Agenda 9:15 a.m. -- 9:30 a.m. Introduction and Overview

9:30 a.m. -- 10:30 a.m. Identifying and Understanding the Players

(Geoff Walsh) Investors, Servicers, Trusts

Securitization and Pooling and Servicing Agreements Servicer Incentives Overview of types of loans

10:30 a.m. -- 10:45 a.m. BREAK 10:45 a.m. -- 12:15 p.m. HAMP and Other Loss Mitigation Protocols

(Sarah Bolling Mancini) Modification waterfalls Net Present Value Tests HAMP Overview and phase-out GSE options Non-Modification Options Government-Insured Options (FHA) 12:15 p.m. -- 12:45 p.m. LUNCH 12:45 p.m. -- 1:45 p.m. The CFPB Mortgage Servicing Rules

(Geoff Walsh) Scope

Requests for Information Requests to Correct Errors Loss Mitigation Reviews Dual Tracking Protections Related Servicing Regulations

ii

1:45 p.m. -- 2:45 p.m. Loss Mitigation for Successors (Sarah Bolling Mancini)

Effects of marital dissolution Heirs and estate issues Role of non-borrowers Policies of Regulators and Insurers

2:45 p.m. -- 3:00 Break 3:00 p.m. -- 4:00 p.m. Intersection of Foreclosure and Bankruptcy

(Sarah Bolling Mancini) Essential Bankruptcy Concepts Chapter 13 Basics What Bankruptcy Can and Can’t Do Post-Bankruptcy Issues 4:00 p.m. -- 4:15 p.m. Overview of Tax Issues

(Geoff Walsh) Discharge of Indebtedness Income Tax Acquisition Indebtedness

4:15 pm. -- 4:30 p.m. Role of Mediation in Loss Mitigation

(Geoff Walsh) Good Faith in Negotiations National Perspective

iii

Helping Alabama Homeowners Face Foreclosures Montgomery, Alabama

National Consumer Law Center®

June 2, 2016

Table of Contents

I. IDENTIFYING AND UNDERSTANDING THE PLAYERS (STRUCTURE OF THE MORTGAGE

MARKET, SERVICERS, TRUSTS, REVIEWING POOLING & SERVICING AGREEMENTS)

PowerPoint Presentation .............................................................................................................................................. 1

Finding Pooling and Servicing Agreements Information Sheet .................................................................. 12

Sample Pooling and Servicing Agreement Excerpts (“CWABS 2006-15”) ............................................... 14

American Association of Mortgage Investors Policy Statement ................................................................. 36

II. INTRODUCTION TO HAMP AND OTHER LOSS MITIGATION PROTOCOLS

PowerPoint Presentation ............................................................................................................................................ 39

Flavors of HAMP Chart ................................................................................................................................................ 58

Making Home Affordable Program Summary ................................................................................................... 62

HAMP and Loan Modification Glossary ................................................................................................................ 69

Loan Modification Program Web Links ................................................................................................................ 70

Making Home Affordable Sample Request for Mortgage Assistance ...................................................... 72

GSE Sample Uniform Borrower Assistance Form .............................................................................................. 79

Government Insured Mortgage Programs PowerPoint Presentation ....................................................... 83

HUD’s FHA Loss Mitigation Priority Waterfall and Examples ....................................................................... 91

III. THE CFPB MORTGAGE SERVICING RULES

PowerPoint Presentation ............................................................................................................................................ 94

CFPB Rules 12 C.F.R. §§ 1024.35, 1024.36, 1024.41 ....................................................................................... 107

IV. LOSS MITIGATION FOR SUCCESSORS

PowerPoint Presentation ......................................................................................................................................... 121

Sample Loan Assumption Agreement and Note ........................................................................................... 132

CFPB Bulletin No. 2013-12 (servicer guidance on successor issues) ...................................................... 133

iv

V. THE INTERSECTION OF FORECLOSURE AND BANKRUPTCY


VI. OVERVIEW OF TAX ISSUES

PowerPoint Presentation ........................................................................................................................................ 156

VII. THE ROLE OF MEDIATION IN FORECLOSURES


v

1

©National Consumer Law Center 2013

Owners, Servicers, Trusts:Identifying and Understanding the

Players

Alabama Foreclosure Training

June 2, 2016

$$

Borrower

Lender

RMBS Securitization Map

$$$

Originator

Processes and funds

individual loans

Note &

Mortgage

$$$

MortgagePayments

Borrower

$$$

$$$

Interim Servicer

Services loans until

securitized

Primary ServicerServices individual loans, collects

payments, performs duties under PSA

Master ServicerPrepares reports for Trustee; remits

monies; ensures Primary performs

$$$

Pool revenue less

servicing fee

SellerPurchases loans from

originator; forms pool

Note &

Mortgage

Depositor

Creates issuing entity

Note &

Mortgage

TrustHolds pool of loans; issues

certificates

Note &

Mortgage

Trustee

Oversees servicers

$$$ fees

$$$ purchase price

$$$ purchase price

Underwriter

Sells certificates to investors,

collects proceeds

Certificates

Certificates$$$ offering

proceeds

Various Classes

Investors/Certificate Holders

Purchase mortgage-backed securities as defined in certificates


proceeds

$$$ less servicing fee

$$$ less

Trustee’s fee

Other parties not shown may include Credit Risk Manager,

Securities Administrator, Swap Counterparty, and Rating

Agencies

MLPA

PSA

PSA

PSA

PSA

MLPA

or PSA

Document

CustodianStores and maintains

mortgage loan collateral files

Collateral

File

Mortgage BrokerReceived broker’s fee, YSP

and processing fees

1

2

Securitization: Practical

Problems

• Who has authority?

– to modify the loan

– to settle

– to litigate

• Who has the documents?

– the note

– the mortgage

– the loan file

Who Owns the Loan?

• Loans “held in portfolio”

– Traditional way of holding loans

– Whole loans

– Easier to modify

• Securitized loans

– Owned by bond holders via a trust

– Tranches, Ownership divided

– PSA limits ability to modify

Who’s Who in Securitization

• Lender/Originator

• Sponsor/Seller

• Depositor

• Underwriter

• Trust/Trustee

• Servicer

• Custodian

• Rating Agencies

• Insurers

• Investors

2

3


$$$

Originator

Processes and funds

individual loans

Note &

Mortgage

$$$

MortgagePayments

Borrower

$$$

$$$

Interim Servicer


securitized





$$$

Pool revenue less

servicing fee



Note &

Mortgage

Depositor


Note &

Mortgage


certificates

Note &

Mortgage

Trustee

Oversees servicers

$$$ fees

$$$ purchase price

$$$ purchase price

Underwriter


collects proceeds

Certificates


proceeds

Various Classes




proceeds


$$$ less

Trustee’s fee



Agencies

MLPA

PSA

PSA

PSA

PSA

MLPA

or PSA

Document



Collateral

File


and processing fees


$$$

Originator

Processes and funds

individual loans

Note &

Mortgage

$$$

MortgagePayments

Borrower

$$$

$$$

Interim Servicer


securitized





$$$

Pool revenue less

servicing fee



Note &

Mortgage

Depositor


Note &

Mortgage


certificates

Note &

Mortgage

Trustee

Oversees servicers

$$$ fees

$$$ purchase price

$$$ purchase price

Underwriter


collects proceeds

Certificates


proceeds

Various Classes




proceeds


$$$ less

Trustee’s fee



Agencies

MLPA

PSA

PSA

PSA

PSA

MLPA

or PSA

Document



Collateral

File


and processing fees


and processing fees


$$$

Originator

Processes and funds

individual loans

Note &

Mortgage

$$$

MortgagePayments

Borrower

$$$

$$$

Interim Servicer


securitized





$$$

Pool revenue less

servicing fee



Note &

Mortgage

Depositor


Note &

Mortgage


certificates

Note &

Mortgage

Trustee

Oversees servicers

$$$ fees

$$$ purchase price

$$$ purchase price

Underwriter


collects proceeds

Certificates


proceeds

Various Classes




proceeds


$$$ less

Trustee’s fee



Agencies

MLPA

PSA

PSA

PSA

PSA

MLPA

or PSA

Document



Collateral

File


and processing fees


and processing fees

3

4


$$$

Originator

Processes and funds

individual loans

Note &

Mortgage

$$$

MortgagePayments

Borrower

$$$

$$$

Interim Servicer


securitized



Master Servicer

Prepares reports for Trustee; remits


$$$

Pool revenue less

servicing fee



Note &

Mortgage

Depositor


Note &

Mortgage


certificates

Note &

Mortgage

Trustee

Oversees servicers

$$$ fees

$$$ purchase price

$$$ purchase price

Underwriter


collects proceeds

Certificates


proceeds

Various Classes




proceeds


$$$ less

Trustee’s fee



Agencies

MLPA

PSA

PSA

PSA

PSA

MLPA

or PSA

Document



Collateral

File


and processing fees


and processing fees

Pooling and Servicing Agreement

• Usually attached to a “prospectus,” filed with SEC for public securitizations, available at www.sec.gov. See specific instructions in the materials.

• Prospectus identifies the players and is a good source of information on the underwriting standards and characteristics of the loans anticipated to be in the pool.

• PSA will usually specify who can institute foreclosure proceedings.

• PSA will set out guidelines and authority for modifying loans or approving other workout options.

• PSA will provide information on where the notes and mortgages should have travelled.

Pooling and Servicing

Agreement and Prospectus

Example:

• Named foreclosing party is “Bank of New

York as Trustee for CWABS Asset-Backed

Certificates Trust 2006-15”

4

5

Who Are Servicers?

• Servicers not the same as investors,

holders, or lenders

• Servicers accept the payments and pass

on to the trust

• Servicers’ compensation largely

independent of loan pool performance

• Borrowers can’t hire or fire servicers

Investor Restrictions

Identifying the investor is critical:• GSE?• Federal agency like the FHA?

• None of the above? (typically a mortgage pool)

Mortgage Pools

Investors in mortgage pools have little say in which loans are modified and what guidelines will be used.

Servicers instead rely on PSAs

Government Sponsored

Enterprises (GSEs)

• Fannie Mae and Freddie Mac placed in government “conservatorship” in September 2008

• Federal Housing Finance Agency (FHFA) designated as federal agency to regulate the GSE’s

• Great influence over industry practices

• Publish guides for servicing GSE loans

5

6

Government Insured Loans

• Three Federal agencies guarantee loans:

• Federal Housing Administration (FHA), a

department of HUD

• Rural Housing Service, part of USDA

• Veterans Administration

• RHS/USDA also makes direct single

family home loans

Loan Documents

• Note & Mortgage/DOT

• HUD-1 Settlement Statement

• TIL Disclosure

• Notice of Right to Cancel

• Loan Application

• Complete Payment History

MERS

• Mortgage Electronic Registration Systems, Inc.

• Established early 1990s by GSEs, large lenders to save money on recording fees

• MERS sells two basic services:

– Loan IDs (MIN Numbers) for members to use

– Signing authority - 20,000 individuals (employees of servicers & foreclosure mills) can sign documents as secretaries or vice presidents of MERS

6

7

MERS

• What can be done in MERS’ name?

• Conduct a foreclosure sale?

• Provide a foreclosure notice?

• Assign a mortgage?

• Transfer a note?

Identifying the Servicer

• Homeowner usually knows

– check account statements

• Check MERS

– www.mers-servicerid.org (search by many methods)

– 888-679-6377 (search by MIN or SSN)

– MERS data on loan ownership is not reliable

• Servicing Transfer Notices 12 USC §2605(b)

7

8

Identifying the Owners - TILA

• Servicer must, upon written request, provide borrower with contact information for the owner.

TILA 15 U.S.C. § 1641(f)(2)

• New Note owner must inform borrower of change in ownership within 30 days. TILA 15

U.S.C. § 1641(g)

• Statutory damages up to $4,000 per violation. 15 U.S.C. § 1640

Identifying the Owner - RESPA

• “Request for Information” under CFPB Mortgage Servicing Rules. 24 C.F.R. § 1024.36, also 12 U.S.C. § 2605(k)(1)(D)

• Servicer is required to respond to any written request for information “with respect to the borrower’s mortgage loan”

• Expedited response time frame: “Not later than 10 days (excluding legal public holidays, Saturdays, and Sundays) after the servicer receives an information request for the identity of, and address or other relevant contact information for, the owner or assignee of a mortgage loan.”

8

9

Getting Information

• www.mersinc.org

• freddiemac.com/mymortgage/

• fanniemae.com/loanlookup/

• TILA § 1641(f)(2)

• RESPA 24 C.F.R. § 1024.36

Primary System of

Record

Electronic Loan

Boarding

Default Processing

Loss Mitigation

Vendor Management

Servicing Modules

Servicer of Performing Loans

Owners of NoteUsually Investors

via Trust

Master Servicer

Primary Servicer

Borrower

9

10

Servicing in Foreclosure

(or Bankruptcy)

Note Owner MERS

National Counselfor foreclosure and bankruptcy

Special Servicer

Default Servicing(Fidelity National)

Local Counselfor foreclosure and bankruptcy

The Problem: Foreclosures Are

Costly

To homeowners

• Neighbors, probably $500 billion in 2009 alone

• Local governments, $20,000-$30,000 per foreclosure—tens of trillions of dollars

To communities

• Loss severities of 65%

• Average per home $145,000

• Billions of dollars

To investors

The Solution: Loan

Modifications

• Saves money for everyone (in theory)

• Net Present Value test– Measures benefit to investors

– Includes cure and redefault statistics

• Don’t know exactly how many loan mods would pass, but probably more than are being done given severity of losses to investors

10

11

What Happens When There Is a

Foreclosure?

• Servicers get paid/ reimbursed for expenses first

• Investors take what’s left

• E.g.,– $400,000 loan

– $100,000 current value

– $50,000 in advances and expenses paid by servicer

– Servicer gets $50,000, investors get $50,000

– Investors have $350,000 loss

– Servicer has no out-of-pocket loss

How Does a Servicer Make

Money?

• Monthly servicing fee

• Default fees and costs

• Servicers want to increase the size of the

pool and pile on fees

– Capitalization mods

– Up-front fees

– Fee padding

11

Finding Pooling And Servicing Agreements (PSA’s) For Securitized Mortgage Loans

The “Pooling and Servicing Agreement” is the legal document that contains the responsibilities and rights of the servicer, the trustee, and others over a pool of mortgage loans. The Pooling and Servicing Agreement can be a stand-alone document or it can be part of another paper, usually called the “Prospectus.” If the securitization is public, these documents must be filed with the Securities and Exchange Commission (SEC), and will be available to the public at www.sec.gov. Locating a Pooling and Servicing Agreement on the SEC website can be a challenge. The most important information you will need to find the Pooling and Servicing Agreement is the name of the original lender and the title of the pool of loans. We will work through an example below. Assume that the lender is Ameriquest Mortgage Co. We don’t know the name of the pool that the homeowner’s mortgage ended up in, but we do know that the mortgage was made on June 1, 2002. Step One: Go to www.sec.gov and click on “Search for Company Filings” under “Filing & Forms (EDGAR).” Under “General-Purpose Searches,” click on “Companies & other filers.” Then, in the “Enter your search information” box, type in “Ameriquest” next to “Company name” and click on the “Find Companies” button. Step Two: The page you are now looking at shows a long list of the names of securitized pools of loans. We know the mortgage was made on June 1, 2002. Look for the entry titled “AMERIQUEST MORT SEC INC ASS BK PAS THR CERTS SER 2002 2.” The document number is CIK 0001175125. Click on that number. We selected this entry because it said 2002 on it and the loan in question was made in 2002. There may be several other pools of mortgage loans that Ameriquest securitized in 2002 but this is the first one we come to on this list (when reviewed in late February 2007) so we will pull it up. Step Three: Now you see a list of documents filed with the SEC that are related to this pool of loans. Scroll down to the bottom and you will see a document titled “Prospectus.” This is the document that will likely be the one you want, assuming that the mortgage loan you are concerned about is in this pool. We can only make an educated guess, unless you know the name of the securitized pool in advance (which is unlikely). Click on either “htm or text” next to this document and the Prospectus will appear. Now, bookmark this document on your web browser, so you can come back to it easily in the future. Note that this Prospectus is also contained on this CD-ROM for your use. Step Four:

12

Is this likely to be the document you want? Scroll down to page S-2 and you will see a Table of Contents. Included in that is the “Pooling and Servicing Agreement” which starts on page S-76. Also, scroll down one more page, past the Table of Contents, and you will see a “Summary of Prospectus Supplement.” Certain important information is listed there, including the cut-off and closing dates for loans that will be included in this pool. The closing date is June 7, 2002. Based on this information, you can assume that this document governs the responsibilities of the servicer of the mortgage loan in question, unless that servicer tells you otherwise and can back it up with a reference to a different agreement or pool. Other important information listed in this Summary includes the title of the pool, and the identity of the servicer and trustee. The servicing rights may have been sold since this document was filed and the current servicer may be a different company but the trustee (the legal holder of the mortgage) should be accurate. Step Five: Go the Pooling and Servicing Agreement to find what you need to know. It should describe how the servicer is paid and by how much, who keeps late and other fees, what authority it has to modify the loan or engage in workouts with homeowners, and its obligations to pass mortgage payments on to the trustee. Congratulations! You are now entitled to an official Sherlock Holmes hat.

13

900 19th

Street, N.W., #800, Washington, D.C. 20006 ∙202-327-8100 main ∙202-327-8101 fax

White Paper

The Future of the Housing Market for Consumers after the Crisis: Remedies to Restore and Stabilize American’s Mortgage and Housing Markets

January 2011

Summary: Investors in non-agency mortgage-backed securities are important stakeholders in the

negotiations between mortgage servicers and the multi-state attorney general task force. Mortgage

investors typically invest on behalf of state pension funds, retirement systems, university and charitable

endowments. Overall, more than 90 percent of the money invested in mortgage-backed securities

represents public money. These investors have suffered material losses as a result of faulty and

inefficient and at times improper servicing of the mortgage loans, for example, the improper analysis of a

borrower’s finances and holistic debt. Instead of helping homeowners, servicers’ interactions with

borrowers often make the process more confusing. This delays resolutions and can worsen the

homeowners’ position. The current servicing model further harms borrowers by dumping excessive fees

(ultimately recouped by servicers) on them during the modification process. More broadly, the abuses

and conflicts within today’s broken servicing model are creating longer term housing and mortgage

problems that impact large parts of the U.S. population. Mortgage investors, who have long advocated

improvements in the servicing business model, welcome and look forward to the review and the

involvement of the Attorneys General. The Attorneys General have a unique opportunity to set market

standards that benefit distressed homeowners and consumers without damaging investors or imperiling

the future of housing and mortgage finance.

Investors have historically testified that the issues underlying the current housing and foreclosure

problem result from a combination of bank-servicer abuses and a national consumer debt crisis. The

Attorneys General are poised to develop a national solution that helps distressed consumers and prevents

a repeated wave of foreclosures over the next two years.

Investors support effective, long-term, and sustainable solutions to the foreclosure crisis. We

break the solution down into two components: “Better Execution” and “Sustainable Solutions.”

1.) Better Execution: Resolving this crisis requires intermediaries to interact with consumers and

distressed borrowers in a fair and productive manner. This will require a paradigm shift within

the current mortgage servicing industry.

o Improve Servicing. Collections operations should be staffed at consistent levels across

the industry in the 120+ day delinquency bucket at not more than 100-150 accounts per

employee. These accounts should be assigned to a single point of contact until they

36

AMI

State Remedy Recommendations

January 2011

Page 2

become current or need to move to a more aggressive loan resolution. We also

recommend the use of special servicers which offer the enhanced counseling and

operational capacity to help consumers find a “right-sized” modification. This also gets

around the numerous existing servicer conflicts of interest, including second lien and

other consumer debt ownership, fees and representation and warranty issues. The

unwillingness of the owners of these other consumer debts to participate in the

modification/restructuring process is still a central issue.

An independent party needs to resolve all of the consumer debt issues. Mortgage

investors are willing to participate, but the other debt holders (e.g., credit card and auto

loans) have not been. This is discussed further in the Sustainable Solutions section

below.

o Transparency. Loss mitigation and the process of foreclosure should be transparent and

open to the homeowner. This process will require an increased effort on the part of the

mortgage servicing staff to educate the homeowner. The servicers’ first duty should be

explaining the legal process of foreclosure and the alternatives available for homeowners.

Improved and effective consumer debt strategies must continue to be refined. The

current practices of face-to-face interviews and field collection calls may be appropriate

options and should be increased and enhanced, as well as, developing improved web-

based video materials explaining the process.

The underlying mortgage and foreclosure data must be disclosed in a public and

transparent manner, including servicing fees, foreclosure expenses, and the actual asset

loss breakdown. The borrower and investor need to understand the full menu of

additional costs that might be incurred due to a foreclosure. The costs due to servicer

error are not to be reimbursed from the RMBS trust; such costs should be borne by the

servicer, not the trust. Finally, vulnerable borrowers must be protected from paying

egregious fees after falling behind on their mortgage payments.

o Investors do not have access (or servicers are blocking access) to the most basic

information about the mortgages, such as the loan files. To ensure that the housing and

mortgage system works for the years to come, transparency in the process is critical. The

Task Force should look to provide reasonable access to these loan files, which are held

for the benefit of investors as beneficiaries of the underlying trusts.

2.) Sustainable Solutions: Homeowners need lasting solutions that put them on a clear path to

affording their debts. Anything less than this just prolongs their distress and the ultimate

recovery of the U.S. housing market. In most situations, this requires a thorough review of all of

the consumer’s debts.

o Investors Support Sustainable Modifications. Modified consumer mortgage solutions

should include:

37

AMI

State Remedy Recommendations

January 2011

Page 3

(1) an option for the homeowner to re-establish a payment under a 31% front-end

debt-to-income ratio (DTI) (as determined by full documentation of current

income and assets, as well as a verification of hardship );

(2) a refinance at 97.75% LTV into the FHA Short Refinance program;

(3) reduction of all junior liens at a minimum of a proportional write-down; and,

Most importantly, all consumer debt should be restructured as part of the

modification. This includes second liens, home equity loans, and credit card and

auto debt. A sustainable mortgage will have combined loan-to-value (CLTV) no

greater than 115% and a back-end DTI of no greater than 50%. Without a

proper solution for high back-end DTI (consumer debt), it is inevitable that

borrowers will re-default even after a modification and the housing crisis will

continue.

o Bankruptcy/Binding Arbitration. Although mortgage investors are willing to participate

in the restructuring, the other debt holders, including subordinate and unsecured debts,

need to participate as well. This is a basic element of fixing a credit problem, whereby

all debts are taken into account, not just the most senior secured debt. To date, the other

debt holders have not participated. This is evident in the high modification re-default

rates and continued broader consumer distress in the economy and housing sector.

o A mechanism to ensure the other debt holders participate in the solution is critical to a

successful outcome. Some potential mechanisms include bankruptcy (whereby

mortgage investors agree to a “voluntary cramdown” – which will not require any

congressional legislation) or binding arbitration (whereby banks and servicers agree to

participate as part of settlement of past bad acts).

o Where a sustainable modification does not work, the servicer and/or counselor should

work with the borrower to efficiently avoid foreclosure, including completing a short sale

or deed in lieu. If the second lien is underwater, there needs to be a mechanism to bypass

their approval for these foreclosure avoidance measures.

Thank you for your consideration of these recommendations, for additional information about

these and other remedies, please contact the Association of Mortgage Investors at 202-327-8100 or

[email protected].

The Association of Mortgage Investors represents private investors, public and private pension funds, and

endowments, all of whom support the efforts of Congress, the Administration, and state officials to help

responsible, though distressed homeowners, avoid foreclosure. For more information, please visit

www.the-ami.org.

38

1


INTRODUCTION TO HAMP

Alabama Foreclosure Law Training

June 2, 2016

What Is HAMP?

• Home Affordable Modification Program

• Component of Making Home Affordable initiative.

• Uniform modification characteristics

– Payments reduced

• To 31% of gross monthly income for HAMP Tier 1

• By any amount for HAMP Tier 2

– Modification results in a positive Net Present Value (NPV) for investors

– Trial modification followed by permanent modification

Flavors of HAMP

Treasury’s HAMP

Participating servicers screen

everybody, subject only to investor

limits

GSE HAMP

All loans guaranteed/

owned by Fannie or Freddie must be

screened for GSE HAMP

Other governmental insured loans

FHA

VA

RHS

39

2

Finding Out If a Loan Is Covered

• List of participating servicers at makinghomeaffordable.gov

Standard HAMP

• https://knowyouroptions.com/loanlookupFannie Mae

• https://ww3.freddiemac.com/loanlookup/Freddie Mac

• HUD-1Governmental Insured Loans

Proprietary Mods

• Interest rate may not be permanently fixed

• May extend term before reducing interest

• No principal reduction typically

• Waivers may sneak in

Generally less

favorable than HAMP

Should be evaluated for proprietary mod after HAMP turndown

Payment Reductions Really Do Matter

Source: MHA Performance Report, 4Q 2015

40

3

Where Is There HAMP Guidance?

• Non-GSE: – Handbook (currently version 5.0)

– Supplemental Directives

– Model Forms – hmpadmin.com

• Fannie Mae: Fannie Mae Single Family Servicing Guide Subparts D2-3; F-1-18 (April 2016) (efanniemae.com)

• Freddie Mac: Bulletins & Chptr 9205 of Seller/Servicer Guide (March 2016) (freddiemac.com)

• FHA: Handbook 4000.1 (March 2016) (hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm)

• VA: Circulars (homeloans.va.gov/valeri.html)

• USDA: Final rule (75 Fed. Reg. 52429 (Aug. 26, 2010))

HAMP Is Floor, Not Ceiling

• Servicers can do

modifications that go

deeper than HAMP

and still receive

incentive payments

• Servicers can offer non-HAMP

modifications, although everyone should be screened

for and offered a HAMP mod

Participating Servicers Must Modify

Loans

• Servicers who sign contract must modify all eligible loans– Approximately 85% of eligible mortgage debt

covered by HAMP servicers– HSBC only major non-participating servicer

• Servicers of GSE loans must modify GSE loans (even if not a participating servicer)

• Servicers, not investors, participate• http://www.treasury.gov/initiatives/financial-

stability/TARP-Programs/housing/mha/Pages/contracts.aspx

41

4

10

1. Eligible to Apply?

2. Qualify for a Mod?

YES

NO

• Participating servicer• Payment > 31% (Tier 1)

• Default or Imminent Risk

HAMP: Basic Eligibility

• One to four unit residential property• Property is not vacant or condemned• Mortgage was originated on or before Jan. 1, 2009• Borrower is delinquent or faces imminent risk of default • Unpaid principal balance is no greater than

– 1-Unit: $729,700– 2-Unit: $934,200– 3-Unit: $1,129,250– 4-Unit: $1,403,400

• Property is borrower’s primary residence*• Current mortgage payments exceed 31% of borrower’s gross monthly income*• No prior HAMP Mod*

* = HAMP Tier 1 Rule (not Tier 2)11

Tie

r 1

HAMP Tier 1 Modification Analysis

• TWO PARTS

• Part 1: Waterfall to calculate affordable

modified payment

• Part 2: Net present value test – is this

modification in best interest of owners of

loan?

12

42

5

Modification Analysis

The “Waterfall” • Determines the modified terms of the loan hypothetically.

• The goal is to reduce the borrower’s monthly payment to 31% of gross monthly income.

– This is the Target Payment

• Payment includes principal, interest, taxes, insurance and, if applicable, association fees (“PITIA”).• Net present value test – is this modification in best interest of owners of loan?

13

31% of What? Income

• Gross income for all borrowers

• Unemployment income excluded

Doing the Math

Multiplier

Non-taxableincome

125%

Rental income 75%

• Non-wage income (including baby-sitting and odd-jobs) less than 20% does not need to be documented; all other income does

• Some income is optional, at borrower’s election− Child support or alimony− Income of non-borrower household members

Incentives

Borrowers, servicers, and investors all receive

payments for modifications

Payments are only for permanent modifications

43

6

HAMP Mods Are Standard Mods

Capitalize arrearages

Reduce interest rate

Extend amortization term to up to 40 years

Principal forbearance

Payment reduced to 31% of the gross income

Waterfall Analysis

Proceeds sequentially through the waterfall, unless

PSA forbids one step or

Principal reduction substituted for any step

Driven by target payment

Capitalization of Arrearages=Principal Debt

Increases

Capitalized arrearage includes:

• Past due principal and interest• Escrow deficiencies/advances, though doesn’t

have to be. • Foreclosure costs

• Servicing fees: property inspections, credit report fee

CANNOT include:

• Late fees: unpaid fees will be waived• Additional modification fees: no charge for

HAMP

44

7

Interest Rate Reduction

• Reduced to as low as 2% for 5 years (to get to 31%)

• Can go lower, but incentives only paid down to 2%

• Increase at 1% after 5 years to lower of – Freddie Mac rate

– Interest rate cap in note

• Once rate increases to cap, fixed for life of loan.

Amortization Term

• Payments extended up to 40 years

• Term can be extended even if payments

can’t be � balloon payments

Principal Forbearance vs. Principal

Reduction

• Principal forbearance—interest free forbearance of principal until loan paid off �large balloon payments

• Servicers required to run an NPV analysis including principal reduction and investor incentives for principal reduction if LTV > 115%, but need not implement it

• Borrowers who stay current receive up to $1,000 a year in principal reduction for 5 years

45

8

NPV Test

• Measures the benefit to the investor of a loan mod– Not servicer

– Not borrower

• Weighs value and probability of unmodified loan vs. modified loan

• A pass means value of loan mod, in present terms, allowing for possibility of redefault, is

greater than the value of the loan unmodified

Modified vs. Unmodified Loan

Unmodified Loan

• Current payments

• Chance of foreclosure• What the foreclosure net will

be

Modified loan

• Modified payments

• Chance of foreclosure after loan mod (redefault)

• What the future foreclosure net will be

What Is a Modified Loan Worth?

Value of payments

• Interest rate

• Discount rate

• How long will payments be made

Chance of redefault

• Numbers drop with

• Payment reduction

• Principal reduction

• HAMP mods

46

9

Two Public NPV Versions

• HAMP NPV (CheckMyNPV.com)

– Standard used by all HAMP servicers

– Available to May 1, 2018

• FDIC Loan Mod in a Box– http://www.fdic.gov/consumers/loans/prevention/NPVCalculator.html

• Can use either to check NPV with

– Computer

– Internet

– Excel

– Basic info from servicer and homeowner

• Both produce the terms of the HAMP modification

Applying for HAMP

Submission of “Initial Package” triggers servicer’s duty to review for HAMP

• Request for Modification and Affidavit (RMA)

• 4506T-EZ form

• RMA and 4506T-EZ Forms available at makinghomeaffordble.gov or hmpadmin.com

• Proof of income

• Checklist available at http://makinghomeaffordable.gov/checklist.shtml

If Approved . . . .

• 3 month Trial Period Plan – Arrears will accrue during trial. Payments are held

in suspense and only credited when equal to full monthly payment under note.

– Will be reported to credit bureaus as either in default or making payments under a plan

• Will be converted to permanent modification upon completion of trial modification– Borrower should not be penalized for servicer’s failure

to timely convert

• If fails trial period: no further HAMP Tier 1 mod. “1 bite at the apple.”– Unless servicer set payments too high

47

10

Conversions

• Conversions to permanent mods often

stalled

• If no mod, then arrearages due in lump

sum

• If mod, capitalize arrearages

– After effective date of trial plan (when permanent mod was supposed to start)

interest accrues at reduced rate

Delayed Conversions

Trials Aged 6+ Months (Percent of all Active Trials)

Source: MHA Quarterly Performance Report, 4Q 2015

If Denied . . . .

• Written denial notices providing basis of

denial must be provided

• Borrower has, in general, 30 days to

challenge denial

48

11

Investor Restriction Denials

• HAMP doesn't override PSAs, but the program follows the “usual and customary industry standards”

• Vast majority of all PSAs permit modifications• If the PSA only prohibits one step in the

HAMP waterfall, servicer must still modify, omitting only the prohibited step

• Servicers expected to use “all reasonable efforts” to get waivers

• 15 U.S.C. §1639a creates safe harbor from investor litigation for servicers who modify under HAMP

NPV Denials

• If an NPV test was run, even if not the reason for the denial, borrower is entitled to all inputs (2.3.2)

• If borrower identifies an error, and changing the error results in a different NPV result, the servicer must re-run the NPV

• The servicer should only change the value corrected by the homeowner; no other values should change

• CheckMyNPV.com

Excessive Forbearance Denials

Standard language in

denial letter says:

• We are unable to offer you a Home Affordable Modification because we are unable to create an affordable payment equal to 31% of your reported monthly gross income without changing the terms of your loan beyond the requirements of the program

49

12

What Is Excessive Forbearance?

Principal forbearance greater than

(i) 30 percent of the UPB (after capitalization under Step 1) or

(ii) UPB less the current mark-to-market.

Can an Excessive Forbearance Be Resolved?

Substitute principal reduction for all or part of the excessive forbearance

Income increased, or escrow decreased may also reduce the required forbearance

Is the interest as low as it can go?

What Isn’t Grounds for Denial

“Insufficient income”

• Low income can cause NPV failure or excessive forbearance denial, but can’t be denied solely on low income.

High DTI

• Back end DTI over 55% formerly required the promise of housing counseling, but was never a basis for denial

Bankruptcy

• Borrowers in an active bankruptcy filing must be considered

• Borrowers cannot be denied because of prior bankruptcy filing

50

13

Common Servicer Violations

• Failure to process application in a timely way

• Failure to convert

• Requiring resubmission of income information

• Asking for an upfront downpayment

• Telling homeowners they have to be in default

• Using incorrect income information in processing NPV

• Inserting waiver into the documents

Escalations

• Every servicer supposed to have a designated teamInhouse

• [email protected]

• Phone: 1-800-7FANNIEFannie Mae Loans:


• Phone: 1-800-FREDDIEFreddie Mac Loans:


• Phone: 1-866-939-4469; Fax: 1-240-699-3883

Non-GSE Loans --HAMP Solution

Center:

HAMP Tier 2

• Started June 1, 2012

• Offered to people who fail or are not eligible for standard HAMP mod

• Offered for investment properties (not owner-occupied)

• Loan mods not as well tailored to individual circumstances, but broader eligibility– Cookie cutter mods that aren’t based on borrower

income– Interest rate will not go as low; fixed at standard rate– Principal forbearance if underwater sufficiently,

whether you need it or not

39

51

14

HAMP Tier 2: Plan B

• If not eligible for HAMP– Failed NPV test

– Excessive forbearance

– Not owner-occupied

– Payments already under 31%

• Failed a previous HAMP trial or permanent mod– If permanent mod, either

• 12 months since effective date or

• Change in circumstances

40

HAMP Tier 2: Terms

• Driven by modification characteristics, NOT by payment or affordability

– Resulting modification must lead to a payment within acceptable DTI range

– Servicer may require payment reduction

• Fixed interest rate (Freddie Mac Primary

Mortgage Market Survey)

• Standard amount of forbearance

• No borrower pay-for-performance incentives41

HAMP Tier 2 Waterfall

• Loan is modified by

– Capitalizing arrears

– Principal forbearance (if LTV > 115%)

– Reducing interest rate

– Extending term to 480 months

• NPV test

• Modified loan checked against affordability requirements

– DTI must fall within acceptable DTI range (10-55% or 25-42%, depending on the servicer)

– Payment reduction requirement (varies by servicer)

42

52

15

GSE HAMP

• Determining if the loan is owned by Fannie

or Freddie:

• fanniemae.com/loanlookup/

• https://ww3.freddiemac.com/loanlookup/

(note: requires last 4 digits of borrower’s

SSN)

43

GSE-HAMP: Basic Differences

• No Servicer Participation Agreement

• No investor bar on HAMP modifications

• Standard application form (Form 710, not RMA)

• No principal forgiveness allowed in borrower-initiated applications

• No optional forbearance beyond program

guidelines

HAMP Tier 1 = GSE-HAMP

• Basically the same waterfall of steps to

reach affordable payment (31% DTI)

– But no principal forgiveness allowed (still can have forbearance)

• Anything better than -$5,000 is a “passing”

NPV result = approval!

45

53

16

HAMP Tier 2 = “Standard Mod”

• Very similar to HAMP Tier 2 calculations

• IF the LTV is at least 80%... If not, different

rules apply…

• Acceptable DTI range is 10-55%

• Interest rate is fixed at the:

– Fannie Mae Mod Rate (4% as of 2/13/15), or

– Freddie Standard Mod Rate (4% as of

2/13/15)

46

Standard Mod for LTV < 80%

• Capitalize arrearage

• Interest rate:– If fixed-rate now, keep the same interest rate

– If adjustable now, fix at Fannie Mae Mod Rate if current rate is lower; or fix at current rate

• Term: Offer the borrower up to 3 options:– 480 months if <= current P&I payment

– 360 months if P&I payment reduced by 20%

– 240 months if P&I payment reduced by 20%

47

When Does HAMP End?

HAMP is currently slated to end Dec. 30, 2016

Initial package must be placed in the mail/ faxed/ emailed no later than that date

Permanent modification in

effect as of September 30,

2017

54

17

Scope of Termination

• Termination applies to array of MHA Programs

• HAMP Tier 1

• HAMP Tier 2

• HAMP Streamlined Modification

• 2MP Second Lien Modification

• HAMP – UP

• HAFA (DIL, Short Sale)

And Outside Treasury HAMP

• Other HAMP Programs ending

• GSE-HAMP – December 31, 2016 for

applications and September 30, 2017 for

Modification Effective Date

• FHA-HAMP - not clear

• RHS and VA HAMP ?

Timing of Treasury-HAMP Phase-Out

• Servicers can stop soliciting September 1, 2016

• Borrower must submit an “Initial Package” by December 30, 2016 for HAMP Tier I and Tier II

• “Effective Date” of permanent modification must be before September 30, 2017

55

18

Review: What is an “Initial Package?”

• “Initial Package” that must be submitted by December 30, 2016 consists of:

• Request for Mortgage Assistance “RMA” Form

• Either (i) IRS Form 4506-T or 4506T-EZ or (ii) a signed copy of the borrower’s tax return for the most recent tax year (servicers may not reject an Initial Package that includes either the borrower’s complete tax return for the most recent tax year orthe IRS Form 4506-T or 4506T-EZ)

• Evidence of income

• Dodd-Frank Certification (part of the RMA Form)

Review: What is Evidence of Income?

• “Evidence of Income” means:

• Each wage earning borrower must provide copies of two recent pay stubs, not more than

90 calendar days old at time of submission, indicating year-to-date earnings.

• Each self-employed borrower must provide

his or her most recent quarterly or year-to-date profit and loss statement. Audited

financial statements are not required.

“Streamline” Modifications

• One likely future replacement for HAMP modifications

• Based on similar GSE model now available since 2013

• Treasury HAMP Streamlined modification available since Jan. 1, 2016

• Basic HAMP eligibility requirements apply, but need not submit Initial Package

• Eligible if defaulted or were ineligible for a past Tier I or Tier II modification in past

56

19

Streamline Modification Procedure

• Automatic offer at 90 days delinquency

• Servicer reviews defaulted loans on portfolio basis, selects NPV positive loans for Streamlined mod offers

• NPV process not public

• Offer/terms not based on borrower income, only on loan terms and property value (info in servicer’s file)

• Borrower accepts Streamlined TPP offer by making first payment and then completing application

• Permanent Streamlined mod executed after completing TPP and submitting application

Policy Issues

• What will replace HAMP?

• Models targeting affordability – target a percentage of income payment, like current HAMP and FHA HAMP

• Cookie cutter models – current GSE mods, HAMP Tier II, Streamline mods (capitalize arrears, fixed interest rate reduction and fixed term extension, maybe limited principal forbearance)

57

5/24/2016

1

FLAVORS OF HAMP CHART

1

Borrower EligibilityHAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard

Mod

FHA-HAMP

Who Is Eligible? Only owner-

occupied

properties

Owner-occupied

and “rental

properties”

Owner-

occupied GSE

loans

GSE loans Owner-occupied

FHA-insured

mortgages

Second Bite at

the Apple (can

you get if prior

mod)?

No Yes (prior Tier 1,

not prior Tier 2)

No Yes, after 12

months

Yes, after 24

months & change

in circumstances

Hardship

Required

No Yes, if mortgage

on rental

property

Yes Yes Yes

Borrowers in

Bankruptcy

Eligible?

Yes Yes Yes

Imminent

default

Yes, servicer-defined Yes, GSE-defined, must involve

death, divorce, or disability

unless indicator is “1”

Yes, Handbook

4000.1, p. 616

2

Loan and Property Eligibility

HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE

Standard

Mod

FHA-HAMP

Loan

originated

Before January 1, 2009 Before

January 1,

2009

12 months

before

default

12 months

before default

MTM-LTV No limit, though NPV will forbid

significant equity

No limit,

though NPV

will forbid

significant

equity

Different

rules apply

for LTV

<80%

No limit

3

58

5/24/2016

2

Mod ApplicationHAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard

Mod

FHA-HAMP

Application

Form

RMA Form 710 No standard

form

Where Rules

Are

hmpadmin.com, MHA

Handbook, Chapter II

Seller-Servicer Guide,

available through web sites

HUD

Handbook

4000.1,

Mortgagee

Letters,

available at

HUD’s

website

When Does

the Program

End?

Applications must be received

by Dec. 30, 2016

Application

must be

received by

Dec. 31,

2016

No deadline No deadline

In Active Yes, although escalations may Yes Yes Yes

4

Mod SolicitationHAMP Tier 1 HAMP Tier 2 GSE HAMP GSE

Standard

Mod

FHA-HAMP

Solicitation

Required?

Yes No Yes Yes

Time for

Solicitation

Within 61

days of

missed

payment

None 31-35 days after missed

payment

Within 32

days of

missed

payment

5

EvaluationHAMP Tier 1 HAMP Tier 2 GSE HAMP GSE

Standard

Mod

FHA-HAMP

Investor

Restrictions

Yes, but must seek waiver No No No

NPV Test Yes Yes No No

Order of

Evaluation

HAMP Tier 1 first GSE-HAMP first Only after

other loss

mitigation

options

evaluated &

rejected

Back-end DTI No cap No cap No cap No cap No cap

6

59

5/24/2016

3

Mod TermsHAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard

Mod

FHA-HAMP

How mod

terms are

set

Driven by

payment

Rigid

application of

formula

Driven by

payment

Rigid

application of

formula

Driven by

payment

Capitalize

arrears

Yes Yes Yes Yes Yes

Interest rate Can go as low

as 2%

PMMS +

margin for risk

(-0.5%, as of

1/1/15)

Can go as

low as 2%

3.625%, as of

5/13/16

PMMS + 25

basis points

(3.875%, as

of 5/17/16)

Term

Extended

Up to 480

months

480 months Up to 480

months

480 months 360 months

7

Target PaymentsHAMP Tier

1

PITIA

HAMP Tier 2

PITIA

GSE

HAMP

GSE

Standard

Mod

FHA-HAMP

PITI

Current

Payment

> 31% DTI No requirement >31% DTI No req’t No req’t

Minimum

payment

reduction

Any amount 10% for BOA,

Wells, Chase;

Any amount for

other servicers

(payment may

not increase)

Any

amount

Any

amount

Any amount

See Mortgagee

Letter HUD

Handbook 4000.1

Part III. A. 2 re

target payment

Target

payment

31% DTI 10%-55% or 25-

42% DTI (varies

by servicer)

31% DTI 10%-55%

DTI

Depends

Payment

Cap

31% DTI 55% or 42% DTI 31% DTI 55% DTI 40% DTI 8

Principal Reduction & ForbearanceHAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard

Mod

FHA-

HAMP

Principal

Reductions

Yes Yes No Limited

program

(Streamlined

mod)

No, just

deferment

Principal

forbearance

caps

Greater of

MTM LTV

100% or 30%

of capitalized

UPB

Lesser of

MTM LTV

115% or 30%

of capitalized

UPB

Greater of

MTM LTV

100% or

30% of

capitalized

UPB

Lesser of MTM

LTV 115% or

30% of

capitalized

UPB

30% of

UPB,

before

default

Borrower pay

for

performance

incentives

Yes, up to

$5,000

No Yes No No

9

60

5/24/2016

4

Limits on AbuseHAMP Tier

1

HAMP Tier 2 GSE HAMP GSE Standard

Mod

FHA-HAMP

Late fees

capitalized?

No No No No No

Caps on

foreclosure fees

capitalized?

No No Yes Yes

($1,800

Freddie Mac)

Yes

($1850)

Waiver of legal

claims?

No No No No ??

Charges for

loan

modification?

No No No No No

10

Enforcement & IncentivesHAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard

Mod

FHA-HAMP

Rules

Privately

Enforceable

Probably, see

Wigod

Probably,

following

Wigod

Probably,

following

Wigod

?? Yes, see

Bankers Life v.

Denton

Escalations Internal;

[email protected]

borrower_outreach@freddie

mac.com

Phone: 1-800-FREDDIE

resource_center@fanniemae.

com

Phone: 1-800-7FANNIE

Internal; NSC

at (877) 622-

8525

Incentives to

Servicers

$800-$2,000, plus

$1,000/year for 3

years

$800-$2,000 $400-$1,600 $400-$1,600 $750 for

executed loan

mod

11

Dual Tracking and ForeclosureHAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard

Mod

FHA-HAMP

Evaluation Before

Foreclosure?

Yes Not required Yes Yes Yes

Foreclosure Sale

Suspended If

Application

Received

>7 business days before scheduled

sale

> 37 days

before

scheduled

sale, for 14

days after mod

offered

> 37 days before

scheduled sale,

for 14 days after

mod offered

> 37 days before

scheduled sale

Foreclosure

proceedings

suspended

During trial plan During trial

plan

During trial plan During trial plan

Foreclosure

Proceedings

Terminated

Upon permanent mod? Upon

permanent

mod?

Upon permanent

mod?

Upon permanent

mod

12

61

Copyright 2013 National Consumer Law Center Page 1 of 7

Introduction

The Making Home Affordable Program was announced by the U.S. Department of the Treasury in February 2009 in an effort to help stabilize the housing market and provide relief for struggling homeowners. The Program has two components: the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP). This summary focuses on HAMP. More information about the entire Making Home Affordable Program and HAMP can be found at http://www.nclc.org/issues/loan-modification-programs.html. HAMP was announced on March 4, 2009 to help standardize industry practices regarding mortgage loan modifications. It is is slated to end December 31, 2015. Detailed HAMP guidelines are available at https://www.hmpadmin.com. Lenders, Investors, and Servicers

Distinguishing between lenders, investors, and servicers is crucial. The mortgage lender is the financial institution that originally provided the mortgage. The mortgage note may have since been sold to another investor or a securitized trust. The servicer is the company responsible for collecting mortgage payments and management and accounting of the mortgage. The servicer is usually different from the investor. Servicer Participation in HAMP

Servicers, not investors, participate in HAMP. Servicers’ agreements with investors are contained in pooling and servicing agreements (PSAs). Most PSAs contain no meaningful restrictions on modifying loans in default. If a PSA contains such a restriction, the servicer must make “reasonable efforts” to get the investor to waive this restriction. The majority of servicers have signed a Servicer Participation Agreement (SPA) with the U.S. Department of the Treasury, agreeing to participate in HAMP. All servicers who have agreed to participate are required to review the eligibility of any borrower who asks to be considered for the program. A list of participating servicers is available at http://makinghomeaffordable.gov/contact_servicer.html. Copies of the contracts are available at http://www.treasury.gov/initiatives/financial-stability/housing-programs/mha/Pages/default.aspx. Loans owned by Fannie Mae and Freddie Mac must be modified under their versions of HAMP, whether or not the servicer is otherwise participating in HAMP. Similarly, VA, FHA, and USDA (RHS) loans have their own version of HAMP. When a servicer transfers a mortgage modified under HAMP, the transferee servicer must assume the transferor’s obligations under the SPA, including evaluating loans for HAMP,

62


processing HAMP trial modifications, and timely converting trial modifications to permanent modifications.1

Protections Against Foreclosure

Servicers are prohibited from referring a loan to foreclosure or conducting a scheduled sale until the borrower has been evaluated and determined ineligible for HAMP, the borrower has failed to make the required trial plan payments, the borrower has failed to provide the required documents after at least two written requests, or the borrower has failed to respond entirely to the servicer, after the servicer has complied with HAMP’s requirements of reasonable solicitation. Seven days before a foreclosure sale can take place, the servicer must provide its foreclosure counsel with a certification that all HAMP requirements have been complied with. If a borrower requests a HAMP modification seven business days prior to a scheduled foreclosure sale, the servicer must suspend the foreclosure sale while it completes its evaluation of the borrower for HAMP. Similarly, if a borrower has escalated denial of a loan modification seven business days before the scheduled foreclosure sale, the sale must be suspended, pending the resolution of the escalation. Once a borrower is in a trial plan based on verified income, the foreclosure process must be suspended. Basic Program Eligibility

To be eligible for HAMP, borrowers must 1) meet the basic program requirements and 2) pass the Net Present Value (NPV) test, an evaluation to determine whether it is more cost effective to modify the loan or foreclose. Basic Program Requirements Both borrowers who are current on their mortgage and those who are delinquent are eligible for a modification under HAMP. If the borrower is current or less than sixty days delinquent, the borrower must demonstrate that default is imminent. Borrowers must meet the following requirements:

• The loan must have originated before January 1, 2009.

• The monthly mortgage payment ratio must be greater than 31% of the borrower’s monthly gross income.2

• The loan must be secured by a one-to-four unit property which is the borrower’s principal residence. One-to-four unit investment properties are eligible for HAMP Tier 2 modifications, even if the borrower does not reside at the property.

1 Servicers can transfer the Eligible Loan without SPA obligations if one of the circumstances in Section 3.1.1of Chapter 2 of the Making Home Affordable Handbook exists and applicable response periods have elapsed. 2 Monthly gross income is the borrower’s income before any payroll deductions.

63


• First lien mortgages must have an unpaid principal balance (prior to capitalization of the arrears) equal to or less than:

o $729,750 for one unit o $934,200 for two units o $1,129,250 for three units o $1,403,400 for four units

• The Property cannot be vacant or condemned.

• The loan cannot have been previously modified under HAMP for HAMP Tier 1 modifications.

• Borrowers must submit a hardship affidavit explaining why they cannot make full mortgage payments.3

• Borrowers must agree to set up an escrow account for taxes and hazard and flood insurance, if one does not already exist.

• Borrowers must certify that they have not been convicted within the last ten years of felony larceny, theft, fraud, forgery, money laundering, or tax evasion in connection with a mortgage or real estate transaction.

Servicers cannot do the following:

• Charge borrowers for the modification.

• Require dead or divorced borrowers on any modification documents. Net Present Value Test

The purpose of the Net Present Value (NPV) test is to determine whether it is more cost effective to modify the loan or foreclose for the owners of the loan. The NPV test compares the net present value of money the investors in the loan would receive if the loan were modified with what would be received if no modification were made. Participating servicers are required to perform a NPV test if a borrower meets the basic eligibility test outlined above. Modifications are “NPV positive” if the investors will get a greater return from modifying the mortgage than not. The servicer must modify the mortgage if it is NPV positive unless there is fraud or a prohibition in the securitization contracts. If prohibited by contract, servicers are required to use reasonable efforts to obtain waivers or approvals from the parties. Modifications are “NPV negative” if the investor is forecast to profit more from proceeding with the foreclosure than from modifying. Servicers may modify under these circumstances, if permitted by investors. Servicers are also required to run an NPV test with principal reduction if the unpaid principal balance of the loan is greater than 115% of the home’s current market value.

3 The affidavit does not have to be notarized.

64


Treasury has created a public site, CheckMyNPV.com, to allow homeowners, counselors, and other interested parties to confirm the servicers’ NPV calculation. This tool provides a NPV evaluation estimate using the same formula servicers are required to use and the discount rates of the largest servicers are embedded in the program. Homeowners who receive an NPV denial letter from the servicer will have available the servicers’ inputs to enter. Provided the homeowner uses the inputs provided by the servicer in any NPV denial letter, the only variation could result from investor restrictions; servicers must document their efforts to seek waivers of any investor restrictions. Income Verification

The borrower must provide the required income verification documents to qualify for a HAMP modification. This includes copies of two recent pay stubs for each wage earning borrower, and either IRS Form 4506-T or the most recent tax return, if the borrowers file taxes. Income less than 20% or more of the borrower’s total gross income need not be documented, including income from non-borrower residents, rental income, public benefit income.

Income verification is required for all borrowers on the loan. However, servicers cannot require income verification for dead or divorced borrowers. Affordability Determination

Once the borrower is approved for modification, the terms of the modification are set through a standard modification waterfall. The goal of these steps is to alter the terms of a mortgage to reduce the total mortgage payment, including principal, interest, taxes, insurance, and association fees, to 31% of the monthly gross income of all borrowers on the mortgage. First, the servicer must capitalize any accrued interest, escrow advances to third parties, and servicing advances paid to third parties related to the preservation of the property and enforcement of the mortgage, if allowed by state law. Second, the servicer can reduce the interest rate as low as 2%, fixed for five years. At the end of five years, the payments increase incrementally at one percentage point a year until they reach the level of the prime monthly mortgage survey rate as reported by Freddie Mac the week the loan is evaluated for modification. Third, if the payment is still not affordable, the servicer can extend the amortization of the loan to a maximum of 40 years. Fourth, the servicer can provide for principal forbearance in which a portion of the principal is deferred and no interest accrues on the deferred amount. The forbearance amount is due at the end of the loan term or when the loan is paid off or refinanced. Servicers may also forgive principal before or instead of any of these steps.

65


Trial Payment Period

After affordability is determined and before the modification becomes permanent, the borrower must complete a three-month trial payment period in which he or she makes monthly payments based on the proposed new loan terms determined by the standard modification waterfall.4 The borrower must make each trial period payment by the last day of the month in which it is due in order to qualify for a permanent modification. If the trial payment period is successfully completed and the servicer confirms the borrower meets the eligibility criteria, the loan modification becomes permanent on the first day of the month following the trial period. If the servicer fails to provide the homeowner with the necessary documents in a timely fashion, the servicer must still treat the borrower’s account as if the modification had been made permanent in all respects, including the effective interest rate and the interest-bearing principal balance. The borrower need not continue making trial modification payments while waiting for the permanent modification documents. Notice of Denial

If a modification is denied at any stage of the process, servicers are required to provide borrowers with a denial notice and a reason for the denial. The borrower may then correct NPV values if necessary. If a correction is accurate, material, and likely to change the NPV outcome, the servicer must re-run the NPV test using the same test and the same inputs, other than those challenged by the borrower. While the test is being re-run, the foreclosure sale must be suspended. Redefault and Loss of “Good Standing”

If a borrower becomes more than 90 days delinquent, the borrower loses good standing. At that point, no further incentives are paid to the servicer, investor, or borrower and the borrower cannot be reconsidered for a future HAMP Tier 1 modification. However, the servicer is still required to work with the borrower to cure the default and consider other available loss mitigation options before initiating foreclosure. Homeowners who have defaulted on a HAMP Tier 1 modification may be considered for a HAMP Tier 2 modification. However, borrowers who fail to make their first payment under a HAMP Tier 1 trial modification, or borrowers whose servicer miscalculated their income (a common error) with the result that the trial plan overstated the monthly payment by 10%, or borrowers who fail to accept the trial plan for any reason are eligible to reapply for a HAMP Tier 1 modification if they can show a change of circumstances.

4 During this trial period the servicer is required to temporarily suspend the foreclosure process, if it has been initiated, and the servicer may not initiate foreclosure or conduct a sale.

66


Borrowers in Bankruptcy

Servicers cannot deny modification because of a borrower’s pending bankruptcy. Borrowers who file for bankruptcy after entering a HAMP trial period plan may not be denied a permanent modification on the basis of a bankruptcy filing. Borrowers who received a chapter 7 discharge and who did not reaffirm the mortgage sought to be modified are eligible, and no reaffirmation of the debt may be required. HAMP Tier 1 vs. HAMP Tier 2 HAMP Tier 2 modifications, unlike standard HAMP Tier 1 modifications, can be made on investment property that does not also serve as the borrower’s residence. HAMP Tier 2 modifications are also available to homeowners who have redefaulted on a HAMP Tier 1 modification, even without a showing of change of circumstances. Borrowers must otherwise meet the basic HAMP eligibility requirements. The HAMP Tier 2 modifications follow a set waterfall, without regard for the affordability of the final payment. For all HAMP Tier 2 modifications, the loan is modified by

o Capitalizing arrears o Adjusting interest rate o Extending term to 480 months o Principal forbearance.

The interest rate is lowered, for all borrowers, to the current Freddie Mac Prime Mortgage Survey Rate plus 50 basis points, rounded to the nearest 1/8th of a percentage point. Similarly, all borrowers whose unpaid principal balance exceeds 115% of the current value of the property will recevie a fixed amount of principal forbearance, based on their loan terms, in a HAMP Tier 2 modification. After the terms of the loan modification are set, it is checked against the Net Present Value test and screened for affordability. Affordability for HAMP Tier 2 modifications is defined as resulting in a debt-to-income ratio between 25% and 42% (in contrast to HAMP Tier 2’s strict insistence on a post-modification debt-to-income ratio of 31%), coupled with a payment reduction, from the pre-modification payments, of 10%. Second Lien Modification Program

Servicers who participate in the Second Lien Modification Program (2MP) must modify second liens they service if the corresponding first lien is modified. The second lien may be either extinguished or modified. If modified, it must be modified following the same steps as required for the first lien modification, with interest reduced to 1%, and the term extended out to the term on the modified first lien. If there is principal forbearance on the the modification of the first lien mortgage, there must be principal forbearance in the same proportion on the second line modification.

67


Unemployed Borrowers

A separate program known as the Home Affordable Unemployment Program (UP) exists for unemployed borrowers. If the borrower declines an offer for an UP forbearance plan, the servicer is not required to offer the borrower a modification under HAMP. However, the servicer, at its discretion, may offer to evaluate the borrower for HAMP in accordance with investor guidelines. Upon completion of the three month UP forbearance, the servicer must evaluate the borrower for HAMP. Borrowers who live in a federal disaster area may combine their UP forbearance sequentially with a three month federal disaster forbearance. Program Incentives HAMP provides for the use of government funds to pay servicers for successful loan modifications. If the borrower completes the initial 3-month trial payment period, the servicer may receive $400 to $1,600 per loan modified, depending on delinquent the mortgage was when modified. Servicers are not permitted to require borrowers to pay down any arrearages in order to qualify the loan for higher incentive payments. If the borrower remains in the program and the borrower’s monthly mortgage payment is reduced by 6% or more, the servicer may receive up to $1,000 each year for up to three years. The investor receives a one-time $1,500 bonus if the borrower was current before the loan modification and the borrower’s monthly mortgage payment is reduced by 6% or more, as well as additional subsidies to support the reduction of the payment, protect against further price declines, and support principal reduction. If the borrower remains current on the modified mortgage, he or she will receive $1,000 each year for up to five years towards reducing the principal balance on the mortgage. These payments are made directly to the servicer and are not included in income for federal tax purposes.

68

HAMP & LOAN MODIFICATION GLOSSARY

2MP: Second Lien Modification Program. The junior lien component of HAMP.

FHA: Federal Housing Authority.

GSEs: Government sponsored enterprises. These include Fannie Mae and Freddie Mac, who between

them hold most of the prime mortgages in the U.S.

HAFA: Home Affordable Foreclosure Alternatives. The short sale and deed‐in‐lieu companion program

to HAMP.

HAMP: Home Affordable Modification Program. The government’s program to encourage loan

modifications.

MHA: Making Home Affordable. The umbrella name for the Administration’s anti‐foreclosure

programs.

Net Present Value: Measurement of the value of a foreclosure or modification, stated in current dollars.

PSA: Pooling and servicing agreement. The agreement between the servicer, the trustee, and the

investors in the loan pool.

Redefault: When a borrower falls behind on a loan modification.

RHS: Rural Housing Services.

RMA: Request for Modification Agreement.

SSG: The Seller‐Servicer Guide. Compendium of rules for servicers of GSE loans.

TPP: Trial period plan.

VA: Veteran’s Administration.

Waterfall: The order in which various steps are taken to reduce the monthly mortgage payment.

69

©National Consumer Law Center August 2013

Current Loan Modification Programs Overview National Consumer Law Center: http://www.nclc.org/issues/foreclosures-and-mortgages.html HAMP General overview: http://financialstability.gov/roadtostability/homeowner.html Borrower information: http://makinghomeaffordable.gov Servicer documents (non-GSE servicers):

http://hmpadmin.com Servicer contracts:

http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/mha/Pages/contracts.aspx

Fannie Mae overview: https://www.efanniemae.com/sf/mha/index.jsp Freddie Mac overview: http://www.freddiemac.com/singlefamily/makinghomeaffordable.html FHA Mortgagee Letters: hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm VA Information: homeloans.va.gov/valeri.html Escalations

[email protected] [email protected] [email protected] [email protected]

Fannie Mae Loan lookup:

fanniemae.com/loanlookup/ Freddie Mac Loan lookup:

70

©National Consumer Law Center August 2013

https://ww3.freddiemac.com/corporate/?intcmp=LLT-HPimage

Streamlined modification program: http://www.freddiemac.com/singlefamily/service/streamlined_modification.html Weekly survey rates: http://www.freddiemac.com Net Present Value Tests FDIC: http://www.fdic.gov/consumers/loans/prevention/NPVCalculator.html HAMP: CheckMyNPV.com National Mortgage Settlement

http://nationalmortgagesettlement.com/ OCC/ FRB/IFR Process

https://independentforeclosurereview.com/ http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/correcting-foreclosure-practices.html http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/ifr-settlement-faqs.html

71

UNIFORM BORROWER ASSISTANCE FORM If you are experiencing a temporary or long-term hardship and need help, you must complete and submit this form along with other required documentation to be considered for available solutions. On this page, you must disclose information about (1) you and your intentions to either keep or transition out of your home; (2) the property’s status; (3) bankruptcy; and (4) your credit counseling agency.

On Page 2, you must disclose information about all of your income, expenses and assets. Page 2 also lists the required income documentation that you must submit in support of your request for assistance. Then on Page 3, you must complete the Hardship Affidavit in which you disclose the nature of your hardship. The Hardship Affidavit informs you of the required documentation that you must submit in support of your hardship claim.

NOTICE: In addition, when you sign and date this form, you will make important certifications, representations and agreements, including certifying that all of the information in this Borrower Assistance Form is accurate and truthful and any identified hardship has contributed to your submission of this request for mortgage relief.

REMINDER: The Borrower Response Package you need to return consists of: (1) this completed, signed and dated Borrower Assistance Form; (2) completed and signed IRS Form 4506T-EZ (4506T for self-employed borrowers or borrowers with rental income); (3) required income documentation; and (4) required hardship documentation. Loan Number ψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψ (usually found on your monthly mortgage statement) Servicer’s Name ψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψψ

I want to: Keep the Property Vacate the Property Sell the Property Undecided

The property is currently: My Primary Residence A Second Home An Investment Property

The property is currently: Owner Occupied Renter Occupied Vacant

BORROWER CO-BORROWER BORROWER’S NAME

CO-BORROWER’S NAME

SOCIAL SECURITY NUMBER

DATE OF BIRTH

SOCIAL SECURITY NUMBER

DATE OF BIRTH

HOME PHONE NUMBER WITH AREA CODE

HOME PHONE NUMBER WITH AREA CODE

CELL OR WORK NUMBER WITH AREA CODE

CELL OR WORK NUMBER WITH AREA CODE

MAILING ADDRESS PROPERTY ADDRESS (IF SAME AS MAILING ADDRESS, JUST WRITE SAME)

EMAIL ADDRESS

Is the property listed for sale? Yes No If yes, what was the listing date? ___________ If property has been listed for sale, have you received an offer on the property? Yes No Date of offer: ___________ Amount of Offer: $ _______________ Agent’s Name: ____________________________________________ Agent’s Phone Number: For Sale by Owner? Yes No

Have you contacted a credit counseling agency for help? Yes No If yes, please complete the counselor contact information below: Counselor’s Name: ___________________________________ Agency’s Name: ___________________________________ Counselor’s Phone Number: ____________________________ Counselor’s Email Address: ____________________________

Do you have condominium or homeowner association (HOA) fees? Yes No

Total monthly amount: $ Name and address that fees are paid to:

Have you filed for bankruptcy? Yes No If yes: Chapter 7 Chapter 11 Chapter 12 Chapter 13

If yes, what is the filing Date: __________ Has your bankruptcy been discharged? Yes No Bankruptcy case number: ______________

Is any Borrower an active duty service member? Yes No Has any Borrower been deployed away from his/her primary residence or received a Permanent Change of Station order? Yes No Is any Borrower the surviving spouse of a deceased service member who was on active duty at the time of death? Yes No

79

Any other liens (mortgage liens, mechanics liens, tax liens, etc.) Lien Holder’s Name Balance and Interest Rate Loan Number Lien Holder’s Phone Number

Required Income Documentation

Do you earn a salary or hourly wage? For each borrower who is a salaried employee or paid by the hour, include paystub(s) reflecting the most recent 30 days’ earnings and documentation reflecting year-to-date earnings, if not reported on the paystubs (e.g. signed letter or printout from employer).

Are you self-employed? For each borrower who receives self-employed income, include a complete, signed

individual federal income tax return and, as applicable, the business tax return; AND either the most recent signed and dated quarterly or year-to-date profit/loss statement that reflects activity for the most recent three months; OR copies of bank statements for the business account for the last two months evidencing continuation of business activity.

Do you have any additional sources of income? Provide for each borrower as applicable: “Other Earned Income” such as bonuses, commissions, housing allowance, tips, or overtime: Reliable third-party documentation describing the amount and nature of the income (e.g., paystub, employment contract or printouts

documenting tip income). Social Security, disability or death benefits, pension, public assistance, or adoption assistance:

Documentation showing the amount and frequency of the benefits, such as letters, exhibits, disability policy or benefits statement from the provider, and Documentation showing the receipt of payment, such as copies of the two most recent bank statements showing deposit amounts.

Rental income: Copy of the most recent filed federal tax return with all schedules, including Schedule E—Supplement Income and Loss. Rental income for qualifying purposes will be 75% of the gross rent you reported reduced by the monthly debt service on the property, if applicable; or If rental income is not reported on Schedule E – Supplemental Income and Loss, provide a copy of the current lease agreement with either bank statements or cancelled rent checks demonstrating receipt of rent.

Investment income: Copies of the two most recent investment statements or bank statements supporting receipt of this income.

Alimony, child support, or separation maintenance payments as qualifying income:* Copy of divorce decree, separation agreement, or other written legal agreement filed with a court, or court decree that states the amount of the alimony, child support, or separation maintenance payments and the period of time over which the payments will be received, and Copies of your two most recent bank statements or other third-party documents showing receipt of payment.

*Notice: Alimony, child support, or separate maintenance income need not be revealed if you do not choose to have it considered for repaying this loan.

UNIFORM BORROWER ASSISTANCE FORM Monthly Household Income Monthly Household Expenses and Debt

Payments Household Assets (associated with the property and/or borrower(s)excluding

retirement funds) Gross wages

$

First Mortgage Payment

$

Checking Account(s)

$

Overtime $ Second Mortgage Payment $ Checking Account(s)

$

Child Support / Alimony*

$

Homeowner’s Insurance

$

Savings / Money Market

$

Non-taxable social security/SSDI

$

Property Taxes

$

CDs

$

Taxable SS benefits or other monthly

income from annuities or retirement

plans

$

Credit Cards / Installment Loan(s) (total

minimum payment per month)

$

Stocks / Bonds

$

Tips, commissions, bonus and self-

employed income

$

Alimony, child support payments

$

Other Cash on Hand

$

Rents Received

$

Car Lease Payments

$

Other Real Estate (estimated value)

$

Unemployment Income

$

HOA/Condo Fees/Property Maintenance $

Other

$

Food Stamps/Welfare

$

Mortgage Payments on other properties $

$

Other

$

Other

$ $

Total (Gross income)

$

Total Household Expenses and Debt

Payments

$

Total Assets

$

80

HARDSHIP AFFIDAVIT I am requesting review of my current financial situation to determine whether I qualify for temporary or permanent mortgage loan relief options. Date Hardship Began is: I believe that my situation is:

Short-term (under 6 months) Medium-term (6 – 12 months) Long-term or Permanent Hardship (greater than 12 months) I am having difficulty making my monthly payment because of reason set forth below: (Please check the primary reason and submit required documentation demonstrating your primary hardship)

If Your Hardship is: Then the Required Hardship Documentation is: Unemployment No hardship documentation required Reduction in Income: a hardship that

has caused a decrease in your income due to circumstances outside your control (e.g., elimination of overtime, reduction in regular working hours, a reduction in base pay)

No hardship documentation required

Increase in Housing Expenses: a hardship that has caused an increase in your housing expenses due to circumstances outside your control

No hardship documentation required

Divorce or legal separation; Separation of Borrowers unrelated by marriage, civil union or similar domestic partnership under applicable law

Divorce decree signed by the court; OR Separation agreement signed by the court; OR Current credit report evidencing divorce, separation, or non-occupying

borrower has a different address; OR Recorded quitclaim deed evidencing that the non-occupying Borrower or co-

Borrower has relinquished all rights to the property Death of a borrower or death of either

the primary or secondary wage earner in the household

Death certificate; OR Obituary or newspaper article reporting the death

Long-term or permanent disability; Serious illness of a borrower/co- borrower or dependent family member

Proof of monthly insurance benefits or government assistance (if applicable); OR Written statement or other documentation verifying disability or illness; OR Doctor’s certificate of illness or disability; OR Medical bills

None of the above shall require providing detailed medical information. Disaster (natural or man-made)

adversely impacting the property or Borrower’s place of employment

Insurance claim; OR Federal Emergency Management Agency grant or Small Business Administration

loan; OR Borrower or Employer property located in a federally declared disaster area

Distant employment transfer / Relocation For active duty service members: Notice of Permanent Change of Station (PCS) or actual PCS orders. For employment transfers/new employment: Copy of signed offer letter or notice from employer showing transfer to a new

employment location; OR Pay stub from new employer; OR If none of these apply, provide written explanation

In addition to the above, documentation that reflects the amount of any relocation assistance provided, if applicable (not required for those with PCS orders).

Business Failure Tax return from the previous year (including all schedules) AND Proof of business failure supported by one of the following:

Bankruptcy filing for the business; OR Two months recent bank statements for the business account evidencing cessation of business activity; OR Most recent signed and dated quarterly or year-to-date profit and loss statement

Other: a hardship that is not covered above

Written explanation describing the details of the hardship and relevant documentation

UNIFORM BORROWER ASSISTANCE FORM

81

Borrower/Co-Borrower Acknowledgement and Agreement I certify, acknowledge, and agree to the following:

1. All of the information in this Borrower Assistance Form is truthful and the hardship that I have identified contributed to my need for mortgage relief.

2. The accuracy of my statements may be reviewed by the Servicer, owner or guarantor of my mortgage, their agent(s), or an authorized third party*, and I may be required to provide additional supporting documentation. I will provide all requested documents and will respond timely to all Servicer, or authorized third party*, communications.

3. Knowingly submitting false information may violate Federal and other applicable law. 4. If I have intentionally defaulted on my existing mortgage, engaged in fraud or misrepresented any fact(s) in

connection with this request for mortgage relief or if I do not provide all required documentation, the Servicer may cancel any mortgage relief granted and may pursue foreclosure on my home and/or pursue any available legal remedies.

5. The Servicer is not obligated to offer me assistance based solely on the representations in this document or other documentation submitted in connection with my request.

6. I may be eligible for a trial period plan, repayment plan, or forbearance plan. If I am eligible for one of these plans, I agree that:

a. All the terms of this Acknowledgment and Agreement are incorporated into such plan by reference as if set forth in such plan in full.

b. My first timely payment under the plan will serve as acceptance of the terms set forth in the notice of the plan sent by the Servicer.

c. The Servicer’s acceptance of any payments under the plan will not be a waiver of any acceleration of my loan or foreclosure action that has occurred and will not cure my default unless such payments are sufficient to completely cure my entire default under my loan.

d. Payments due under a trial period plan for a modification will contain escrow amounts. If I was not previously required to pay escrow amounts, and my trial period plan contains escrow amounts, I agree to the establishment of an escrow account and agree that any prior waiver is revoked. Payments due under a repayment plan or forbearance plan may or may not contain escrow amounts. If I was not previously required to pay escrow amounts and my repayment plan or forbearance plan contains escrow amounts, I agree to the establishment of an escrow account and agree that any prior escrow waiver is revoked.

7. A condemnation notice has not been issued for the property. 8. The Servicer or authorized third party* will obtain a current credit report on all borrowers obligated on the

Note. 9. The Servicer or authorized third party* will collect and record personal information that I submit in this

Borrower Response Package and during the evaluation process. This personal information may include, but is not limited to: (a) my name, address, telephone number, (b) my social security number, (c) my credit score, (d) my income, and (e) my payment history and information about my account balances and activity. I understand and consent to the Servicer or authorized third party*, as well as any investor or guarantor (such as Fannie Mae or Freddie Mac), disclosing my personal information and the terms of any relief or foreclosure alternative that I receive to the following:

a. Any investor, insurer, guarantor, or servicer that owns, insures, guarantees, or services my first lien or subordinate lien (if applicable) mortgage loan(s) or any companies that perform support services to them; and

b. The U.S. Department of Treasury, Fannie Mae and Freddie Mac, in conjunction with their responsibilities under the Making Home Affordable program, or any companies that perform support services to them.

10. I consent to being contacted concerning this request for mortgage assistance at any telephone number, including mobile telephone number, or email address I have provided to the Lender/Servicer/ or authorized third party*. By checking this box, I also consent to being contacted by text messaging.

_________________________________ __________ ___________________________ __________ Borrower Signature Date Co-Borrower Signature Date

*An authorized third party may include, but is not limited to, a counseling agency, Housing Finance Agency (HFA) or other similar entity that is assisting me in obtaining a foreclosure prevention alternative.

82

1


Government-Insured Mortgage

Loan Programs


June 2, 2016

THREE FEDERAL AGENCIES

• HUD – manages FHA single-family insured loan program

• VA – manages VA single-family insured loan program

• USDA – manages two distinct programs:

– USDA insured single-family home loan program

– USDA direct loan program (purchase and home repair loans)

Structural Similarities - Authority

• Federal Statute

• Codified Regulation (C.F.R.)

• Agency Handbook

• Administrative updates (on website)

• Court decisions

3

83

2

Defense to Foreclosure

• Compliance with regulatory framework as condition precedent to foreclosure

• Enforce regulations to defeat foreclosure

• Enforce loan contract that incorporates regulatory obligations

• Compare Campbell v. Bank of Am., 141 So.3d 492 (Ct. App. Ala. 2013) and Wells Fargo v. Neal, 922 A.2d 538 (Md. 2007) (both addressing FHA equitable defense)

4

FHA LOSS MITIGATION

AUTHORITY

• Statute; 12 U.S.C. § 1715u

• HUD Regulations: 24 C.F.R. § 203.500, et seq. and §203.600,

et seq.

• HUD Mortgagee Letters

• New HUD Handbooks 4000.1 (effective March 2016)

• Court Decisions

• HUD/FHA website: http://www.hud.gov/offices/adm/hudclips/

(contains Mortgagee Letters, Handbooks)

The Federal Statute: FHA Loss

Mitigation Review is Mandatory

• The National Housing Act states: Upon

default of any mortgage insured under this title, mortgagees shall engage in loss

mitigation actions for the purpose of

providing an alternative to foreclosure.

• 12 U.S.C. § 1707u(a)

• Obligation is also in the mortgage –enforceable as contract term

84

3

FHA Loss Mitigation Tools

• What loss mitigation techniques must be reviewed under § 203.501 & Handbook 4000.1?– “Special forbearance”

– FHA Standard Modification

– FHA HAMP, including:• Income-based modification and/or

• “Partial Claim” (principal forbearance)

– Pre-foreclosure sale

– Deed in lieu of foreclosure

FHA-HAMP: The Basic Concept

• Combines a partial claim with a loan modification (30-year term, fixed interest rate)

• Uses “partial claim” (principal forbearance) to reach a target payment– Either percentage of income, or– Percentage payment reduction

• The total partial claim (principal forbearance) may not exceed 30 percent of the unpaid principal balance as of the default date.

• No formal NPV test.• New “FHA Loss Mitigation Home Retention Option

Priority Order Waterfall” in HUD Handbook 4000.1 Part III (2016)

FHA National Servicing Center

Oklahoma City Office

U.S. Department of HUD

301 NW 6th Street, Ste 200

Oklahoma City, OK 73102

Fax: (405) 609-8405 or

(405) 609-8421

www.hud.gov/offices/hsg/sfh/nsc/nschome.cfm

E-mail: [email protected]

1-877-622-8525

See also HUD Neighborhood Watch: https://entp.hud.gov/sfnw/public/ (data on FHA loss mitigation activity by state and by servicer)

85

4

RURAL HOUSING LOANS

• U.S.D.A.’s Rural Housing Service (“RHS,” formerly “FmHA”) manages two single-family home loan programs for borrowers in rural areas.– Guaranteed Loan Program: private lender,

guarantee not obvious from mortgage and note

– Direct Loan Program: The United States is the lender and they tell you they are

RHS RESOURCES

Guaranteed Loans:

42 U.S.C. § 1472, et seq.

USDA Regulations: 7 C.F.R. § 1980.301, et seq.

RD Instruction 1980-D (tracks regulations) at http://www.rurdev.usda.gov/regs/

RD Administrative Notice 4433 at http://www.rurdev.usda.gov/regs/

• Includes USDA Rural Development Loss Mitigation Guide (Single Family Guaranteed Loan Program)

– Appendix 4: Loss Mitigation Checklist

– Appendix 5: Loss Mitigation Forms

RHS Guaranteed Loan Program

• RHS Guaranteed Loans: Loss Mitigation

obligation: 42 U.S.C. § 1472(h)(13)

• Options for RHS Guaranteed Loans

– Special Forbearance

– Loan Modifications (including “RHS-HAMP)

– Pre-Foreclosure Sale

– Deed-in-Lieu

86

5

Rural Housing Direct Loans

These are loans directly from the United States government (USDA) to the borrower for

purchase or construction of residence

• “Section 502” loans under U.S. Housing Act

– Regulations: 7 C.F.R. Part 3550

– Handbook HB-2-3550 (Centralized Servicing

Center): http://www.rurdev.usda.gov/regs/hblist.html

RHS Direct Loans

• Direct Loans Special Features:

• Interest credit/payment assistance

reduces monthly payment toward interest

based on household income

• Periodic payment adjustments and review

• Forborne interest is subject to “recapture”

VA Loans - Introduction

• VA guarantees loans by private lenders

• Available for eligible veterans

• Can be for purchase, construction, refinance

• Relatively low interest rate, no down payment

87

6

VA Loans Resources

• Regulations: 38 C.F.R. § 36.4800-4893 & 38 C.F.R. § 4316-19

• VA Handbook H26-94-1

• Servicer Loss Mitigation Program Handbook

• Both handbooks at http://www.homeloans.va.gov/servicers.htm

• Help from regional servicing centers

What are the VA Options?

• Repayment Plan

• Special Forbearance

• Loan Modification

• VA-HAMP

• Compromise (short) sale

• Deed-in-Lieu of foreclosure

• Refinance

• Assumption

• Refunding- VA takes over loan

88

1


The CFPB’s Mortgage Servicing

Rules


June 2, 2016

CFPB Mortgage Servicing Rules

• Dodd-Frank Act of 2010 amended RESPA and TILA to include new servicing requirements

• CFPB issued mortgage servicing regulations in Feb. 2013

• Regulations became effective January 10, 2014 (some revisions underway 2016)

2

CFPB Servicing Rules

• Applies to mortgage servicers

– Small servicer exemption (certain provisions)

– Most credit unions, community banks

exempted

• Covers most first lien loans: GSEs,

government insured loans– But not loans securing open-end lines of credit

– Not reverse mortgages

94

2

Notices of Error and Requests for Information

• Separate qualifications and procedures for: – “notice of error” - Reg. X § 1024.35 – “request for information” - Reg. X § 1024.36

• Written inquiry can be a NOE or RFI even if not a former “Qualified Written Request”

• Ban on fees for responding to either a NOE or RFI– § 1024.35(h) – error resolution– § 1024.36(g) – information requests

4

Notice of Error12 C.F.R. § 1024.35

Failure to accept a conforming payment

Failure to apply a payment correctly

Failure to timely credit a payment

Failure to make timely escrow disbursements

Imposing an unreasonable fee

Failure to provide a payoff statement

Failure to provide accurate loss

mitigation information

Failure to do a servicing transfer

correctly

Filing a foreclosure without giving the correct notices re.

loss mitigation

Moving for foreclosure judgment

or sale without following the loss

mitigation protocols

Any other error relating to the servicing of a

borrower's mortgage loan

5

CFPB Error Resolution Procedures Time Frames

• 5 days to acknowledge receipt

• 30/45 days to respond (reasonable

investigation, report on error correction)

• For errors related to dual tracking

submitted up to 7 days before sale,

servicer must respond before sale. 12 C.F.R. § 1024.35(f)(2)

95

3

Request for Information• Servicer is required to respond to any written

request for information “with respect to the borrower’s mortgage loan”

• Unlike QWR, a RFI is not limited to information “related to the servicing” of the loan

• RFI may seek:– information about a loan modification application

– “servicing file” vs. “mortgage file”

Identity of Mortgage Loan Owner RESPA/TILA

– RESPA Request for Information: Servicer must respond within 10 business days to request for identity, address, and other contact information about owner or assignee of loan. Reg. X §1024.36(d)(2)

– Supplements TILA § 1641(f), but provides time deadline

RFI for Loan Owner

• Who is the current “owner or assignee” of

mortgage loan?

• Generally the beneficial owner – party

ultimately entitled to receive payments

• Guarantor role

• Considering special rule for GSEs.

9

96

4

Asking the Servicer to Identify the Mortgage Loan Owner

Useful commentary in the RESPA Official Interpretations, § 1024.36(a)-2

TILA - § 1641(f)(2) RESPA - Reg. X § 1024.36(d)(2)

Time Presumptively “reasonable” 10 business days

Fees Not discussed Banned

Remedy $4K plus actual damages,

but servicer liability?

Actual damages, plus

$2K if can prove pattern and practice

Statute of limitations 1 year 3 years

10

Loss Mitigation Rules

Rules effective Jan. 10, 2014 dealing with foreclosure avoidance:

• Early Intervention - Reg. X § 1024.39

• Continuity of Contact - Reg. X § 1024.40

• Loss Mitigation - Reg. X § 1024.41

11

Jan. 10, 2014 Effective Date

• Does not apply to applications received

before effective date

• Applies to applications received after

effective date even if borrower evaluated for loss mitigation before effective date

12

97

5

Pre-Foreclosure Review Period

By 36th day of delinquency

Attempt live contact with borrower

By 45th day

Send written notice and assign personnel to borrower

After 120th Day

If complete application not received, may initiate foreclosure by making first notice or filing

13

Loss Mitigation Procedures

• CFPB: nothing in § 1024.41 imposes duty on a servicer to provide borrower with a specific loss mitigation option

• Borrowers do not have private right of action under § 1024.41 to enforce terms of agreement between servicer and mortgage holder concerning evaluation for loss mitigation options

• Borrowers do have private right of action to enforce the procedural requirements in §1024.41

14

The Loss Mitigation “Application”

• Key concept: the “Application”

• Expansive definition of a loss mitigation

“application”

– May be verbal or in writing

– Borrower must:

• Express interest in foreclosure avoidance

• Provide some information relevant to evaluation for an available option

98

6

Receipt of Application 45 Days or More Before Sale

Servicer must:

• Conduct review to determine whether application is complete

• Within 5 business days of receiving application, provide written notice to borrower that:

• acknowledges application is complete, or

• describes documents and information needed to complete the application, and

• provides “reasonable date” by which borrower should submit missing documents and information

16

The “Complete” Application

• When is an application “complete?”

• When servicer “has received all the

information that the servicer requires” to

evaluate for “the loss mitigation options available to the borrower.” (§1024.41(b)(1))

• You need to know how applicable owner/investor guidelines determine the

options “available”

The “Complete” Application

• Servicers have flexibility to establish their own application requirements, but must exercise “reasonable diligence” to obtain information needed to complete the application

• Application is complete if borrower provides all required information within borrower’s control even if additional information not in the control of the borrower is required (e.g., credit report)

18

99

7

A “Facially Complete Application”

• Means borrower submitted all missing

docs, nothing more due (12 C.F.R. 1024.41(c)(iv))

• Servicer may later request more docs, but borrower retains all protections re: notices,

dual tracking, appeals

“Incomplete Application”

• Servicer has duty to assist in completion

• Must give 5-day notice of:

– What is needed to complete the application

– Deadline for completion

What Happens When the Servicer Gets a “Complete” Application?

• Upon receipt of “complete” application

• Servicer must “evaluate”

• For all “available” options– Not just the ones borrower asked about

• Written notice of decision in 30 days– Describe options being offered

– Specific reason for denial of each available loan modification option

– Notice of right to appeal (escalate)

100

8

CFPB Dual Tracking Restrictions

Two stages

120 day pre-foreclosure review

period

Period from initiation of

foreclosure to sale

CFPB: Dual Tracking Restrictions Before Initiation of Foreclosure

• Runs 120 days from start of delinquency

• Bars “first notice” to start foreclosure

• Insulation from foreclosure activity

• Emphasis on soliciting application (“early

intervention” notice)

• Pre-emption of state foreclosure laws

CFPB: Dual Tracking Restrictions After Initiation of Foreclosure

• Duty to evaluate and give written notice of

decision for complete application submitted up to 37 days before sale date

101

9

Date of Foreclosure Sale

• If no foreclosure sale has been scheduled as of date complete loss mitigation application is received, the application is considered to be received more than 90 days before any foreclosure sale

• Dual track and other protections that apply based on timelines remain in effect even if foreclosure sale is later scheduled or rescheduled

25

Summary: Loss Mitigation Application Received . . .

120 days of delinquency

Full evaluation, notice of incomplete application, and appeal rights

No referral to foreclosure

90 days or more before sale

Full evaluation, notice of incomplete application, and appeal rights

No foreclosure sale until application reviewed

45 days or more before sale

Full evaluation and notice of incomplete application


38 days before sale

Full evaluation


26

Evaluation of Incomplete Loss Mitigation Application

Servicer may offer:

• A short-term payment forbearance (for payments due over no more than 6 months)

• Other loss mitigation option if application remains incomplete for a significant period of time

If forbearance provided,

servicer must:

• Not initiate or continue with foreclosure if borrower is performing under agreement

• Continue to comply with loss mitigation rule and seek documents to complete application and review if later becomes complete

27

102

10

Loan Modification Denial

• If loan modification denial based on a requirement set by loan owner or assignee, notice must identify owner or assignee and specific requirement that was basis for denial

• If loan modification denial based on net present value test, notice must state this reason and include the inputs used for the calculation

• Denial notice must also describe borrower’s right to appeal, the deadline to appeal, and any requirements for making an appeal, if applicable

28

Loss Mitigation ProcessAppeal Rights

• Appeal rights apply only to decisions:– involving eligibility for loan modifications– made on complete (or facially complete) applications

submitted 90 days or more before a scheduled foreclosure sale

• Borrower must request an appeal within 14 days after servicer provides initial notice of determination

• Review must be by “different personnel than those responsible for evaluating” application

• Servicer must decide appeal and provide notice of determination to borrower within 30 days of appeal request

29

Four Basic Notices Required by Rules

Initial pre-foreclosure notice (w/in 45 days of delinquency)

Notice of acknowledgement of receipt of application (5 days from receipt)

• Both for complete and incomplete application

Notice of decision on application & appeal rights (30 days after complete app. received)

Notice of appeal decision

103

11

Transfer Requirements

• New servicer must obtain loss mitigation documents and information submitted by borrower to former servicer and comply with § 1024.41

• If borrower’s complete application is being evaluated when mortgage is transferred, new servicer should “continue the evaluation to the extent practicable”

• Documents in a complete application are received for purposes of timelines as of date they were received by former servicer, not new servicer

31

“Duplicative” Applications• Section 1024.41(i): “A servicer is only required to comply

with the requirements of this section for a single complete loss mitigation application for a borrower’s mortgage loan account”

• Does this really mean borrowers have only “one bite at the apple,” regardless of when earlier application was submitted or whether there have been changed circumstances?

32

What Must Still Be Done for “Duplicative” Applications

• Rule does not apply if:

– Application is made to a different servicer –comment 41(i) states that transferee servicer

must comply (but does this include transfers between affiliates or through merger?)

– Servicer provides short-term forbearance or

other loss mitigation option on an incomplete application

33

104

12

Pending Revisions

• Possible revision of § 1024.41(i) “duplicate

application” limitation

• Borrower may be able to submit more loss

mitigation application and receive RESPA procedural protections if not delinquent at

all times since last application

34

Servicers’ Duties under TILA –Regulation Z

• Promptly Credit Payments

• Provide Periodic Mortgage Statements

• Provide Payoff Statements

• Provide Payment Change Notices

• Provide Transfer of Ownership Notices

• 12 C.F.R. §§ 1026.20, 1026.36, 1024.41

35

Periodic Statements

• Servicer must send statement for each billing cycle with the following categories of information:– amount due for the billing period

– explanation of amount due including fees imposed

– past payment breakdown

– transaction activity

– partial payment information– contact and account information, and

– delinquency information, if applicable

• Disclosure required of payments servicer decides to hold in suspense account rather than apply to account

36

105

13

Periodic Statements When Homeowner Is

> 45 Days Late

Date consumer became delinquent;

Notification of possible risks, such as foreclosure, and expenses, if delinquency is not cured;

Account history for previous six months or since last time account was current, showing the amount remaining past due from each billing cycle;

Notice of any loss mitigation program to which the consumer has agreed;

Notice of whether the servicer has initiated foreclosure by making the first notice or filing required by state law;

Total payment amount needed to bring the account current; and

Either the CFPB list or the HUD list of homeownership counseling organizations and the HUD toll-free telephone number

37

106

1


Getting Loan Mods for

Successors In Interest


June 2, 2016

What we’ll talk about

• Assumptions– May the client assume the mortgage?

• Special rules – HAMP

– Freddie & Fannie

– FHA

– CFPB current and proposed rules

• Litigation theories and case law update

2

Is your client on the note?

• “Mortgage” = promissory note + mortgage

3

Promissory Note

I promise to pay $100,000 at 6% interest.

I will making monthly payments of principal and

interest beginning December 1, 2014.

Any remaining principal shall be due November 1, 2044.

Mortgage

“Borrower” is John Doe“Lender” is Main Street Bank.

This Security Instrument secures to Lender (i) the

repayment of the Loan, and (ii) the performance of Borrower’s

covenants and agreements under the Note and this

Instrument.

121

2

Quick Tips re Absent Co-Borrowers

(Your client is a co-borrower on the note, but another co-borrower is absent.)

Applicable

Rules

Citation for excusing participation/signature

of an absent co-borrower

Freddie Mac Freddie Mac Servicing Guide, Chapter C65.7

Fannie Mae Fannie Mae Servicing Guide §§ D2-2-05; F-1-

18

HAMP Making Home Affordable Handbook Version

4.4, Ch. II, §§1.2, 5.7

FHA Mortgagee Letter 2009-23, Attachment

(Eligibility: Mortgagors)4

Does your client own the home?

Deed

George Smith (“grantor”), hereby conveys to Gerald Oster and Olivia Johnson, as joint

tenants with right of survivorship (“grantees”), the property at:

All that tract or parcel of land lying and being in

Land Lot 235, District 13, Lot B, as shown in the plat recorded at…

DeedGeorge Smith (“grantor”), hereby conveys to Gerald and Olivia Johnson, as Husband and

Wife (“grantees”), the property at:

All that tract or parcel of land lying and being…

5

Does your client own the home?

• Your client is a joint tenant on a right of survivorship deed

• Your client inherited through a will or through intestate law and has completed any required probate process

• Your client is the remaining beneficiary of an inter vivos trust

• Your client was awarded the home in a divorce decree or property settlement agreement

6

122

3

Right to Information: CFPB Reg

• 12 CFR 1024.38(b)(1)(vi)

“A servicer shall maintain policies and procedures… reasonably designed to…

(iv) Upon notification of the death of a borrower, promptly identify and facilitate communication with the successor in interest of the deceased borrower with respect to the property secured by the deceased borrower’s mortgage loan.”

• This section of RESPA not privately enforceable… but send a Notice of Error!

7

CFPB Reg and Bulletin

• CFPB Bulletin 2013-12 (Oct. 15, 2013) explains how servicers can comply with the Reg:

• Servicers must let successors in interest know what documents they need to provide for communication & assumption

• These docs must be reasonable

• Servicers must let successors in interest know what their options are

• Servicers must develop policies for suspending foreclosure and processing assumption and loan modifications simultaneously

8

What’s an assumption?

• Subjects client to personal liability on the

note

• Gives clients all rights of a borrower

• Does not relieve original homeowner of

personal liability unless creditor agrees

9

123

4

Starting Point: The Client gets to decide

whether or not to assume the mortgage

• Not the servicer; not the mortgagee• Olson v. Etheride, 686 N.E.2d 563 (Ill. 1997) (contracting

parties can modify who has primary responsibility for payment of a debt, without reference to the wishes of the creditor of that debt)

• Andrews v. Holloway, 140 Ga. App. 622, 623 (1976) (under Georgia law, mortgages are freely assignable and assumable and “the lack of consent is immaterial.”)

• Restatement 2nd of Contracts § 323 Comment a (“The assent of the obligor is not ordinarily necessary to make an assignment valid.”)

• See generally Restatement 3rd of Property (Mortgages), §§ 5.1, 5.2 (transfers with and without assumption of liability)

10

State contract law: mortgages are

freely assumable unless:

• Contract for personal services

• Against public policy

• Restriction in the contract

11

Due-on-Sale Clauses

• Permit the mortgagee to cancel the mortgage contract and call the loan if the property is

transferred

• This is the method creditors use to restrict a transferee’s right to assume the loan

– See Restatement 3rd of Property, §§ 5.1, 5.2

• No due-on-sale clause = no right to foreclose when the property is transferred

– Coffing v. Taylor, 16 Ill. 457 (1855)

12

124

5

Example

“If all or any part of the Property or any

interest in the Property is sold or transferred (or if Borrower is not a natural

person and a beneficial interest in

Borrower is sold or transferred) without Lender’s prior written consent, Lender may

require immediate payment in full of all

sums secured by the Security Instrument.”

13

Garn-St Germain Depository Institutions Act

• Garn-St. Germain Depository Institutions Act at 12 U.S.C. § 1701j-3 et seq (1982)

• Pre-empts state laws that formerly protected homeowners against bank’s oppressive use of due-on-sale clauses:

“Notwithstanding any provision of the constitution or laws (including the judicial decisions) of any State to the contrary, a lender may … enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan.”

14

Silver Lining: Exceptions to Garn

• A due-on-sale clause cannot be enforced when an interest in real property is transferred:� Via devise, descent, or operation of law upon the

death of a joint tenant or TBE� To a relative resulting from death of borrower� To a spouse or child of the borrower

� To a spouse pursuant to a divorce decree or separation agreement

� And others. See 12 USC § 1701j-3(d); 12 CFR §191.5(b)(1).

15

125

6

The Loan is “Assumable”

• See legislative history of Garn

• Congress repeatedly referred to loans with enforceable DOS clauses as “not assumable” and to loans without enforceable DOS clauses as “assumable.”– See S. REP. NO. 97-536, at 25 (1982), as reprinted in 1982

U.S.C.C.A.N. 3054, 3074–79.

• You can’t use a due-on-sale clause to refuse to honor an assumption that is in one of the protected classes

16

Helpful Language in the Note and/or Mortgage

• “Any person who takes over these obligations. . . is also obligated to keep all of the promises made under the Note.”

• “The covenants and agreements of this Security Instrument shall bind and benefit the successors and assigns of Lender and Borrower, subject to the provisions of paragraph 17.”

• Read the note and security deed with a highlighter!

17

How Do You Get An Assumption?

• No necessary formal words

– “Any words indicating the transferee’s intent to undertake

personal liability for the obligation will suffice.” Carpenter

v. United States, 69 Fed. Cl. 718, 725 (U.S. Claims 2006)

– Restatement 3rd of Property, Mortgages, 5.1

• Signing a loan modification can show assumption

– Chicago Assets Co. v. Watrous, 262 Ill.App. 254 (1st Dist.

1931)

• Best if you can point to a specific communication saying “I

hereby assume and promise to pay this debt.”

– Brush v. Wells Fargo Bank, N.A., 911 F.Supp.2d 445, 459-

462 (S.D. Tex. 2013)

18

126

7

LOAN MOD PROGRAM RULES FOR SUCCESSORS

19

Which Rules Apply?

• FHA insured (HUD mortgagee letters)

– FHA loan # on monthly statements and on the mortgage

• Fannie Mae owned (Fannie Servicing Guide)

– https://knowyouroptions.com/loanlookup

• Freddie Mac owned (Freddie Servicing Guide)

– https://ww3.freddiemac.com/loanlookup/

• HAMP participating servicer (Treasury’s MHA Handbook)

– http://www.makinghomeaffordable.gov/get-started/contact-mortgage/Pages/default.aspx

20

HAMP Rules

• Non-borrowers who inherit or are awarded sole title following a death or divorce may apply for a HAMP mod; “servicers should collect an initial package from the non-borrower who now owns the property” and evaluate it “as if he or she was the borrower.” (MHA Handbook, Ch II, Sec. 8.8)

• Simultaneous assumption and modification IF “applicable law” and “investor guidelines” permit assumption (8.8)

• Surviving homeowner remains eligible for new TPP, even if gets booted out of an existing TPP; servicer must stay foreclosure for non-borrower while assumption process chugs forward (8.9.2)

21

127

8

Fannie Mae

• References “exempt” transactions—basically the Garn-St Germain exceptions

• Requires communication with new owners in exempt transactions

• Loan mod requests for new owners in exempt transactions have to be evaluated as if they came from borrowers (for all available options)

• See Fannie Mae Lender Letter LL-2013-04, and Fannie Mae Servicing Guide Announcement SVC-2013-17; Fannie Guide D1-4.1-02

22

Freddie Mac

• Provides for simultaneous modification (HAMP or Standard Mod) and assumptions after a transfer of ownership covered under Sec. 8406 (Garn-exempt transfers)– Sec. 9207.2 in the Freddie Mac Guide– Freddie Mac Bulletin 2013-3 (Feb. 15, 2013)

• Potential issues:– Previously divorce was not clearly covered; this is

no longer an issue! – Language not entirely clear that assumption can’t

involve credit screening, but simultaneous modification and assumption suggests that successor would only need to qualify for the mod

23

FHA rulesNew Servicing Handbook, released June 24, 2015:

Non-Borrowers who Acquired Title through an Exempted Transfer

The Mortgagee may consider for Home Retention Options a non-borrower wo acquires title to a Property… if the mortgage is not due and payable pursuant to the Garn-St. Germain Act, and the non-borrower:

• Will occupy the home as a Principal Residence

• Submits to a credit review• Meets financial criteria for loss mitigation assistance; and

• Is willing to assume personal liability for the mortgage in accordance with the agreed loss mitigation terms

Handbook Section III. A. 2. j. ii (B) (4), page 544

See also Wells Fargo Bank v. Curley, 13-CV-7333, Franklin County Court of Common Pleas (Feb. 10, 2015) (heir is a “mortgagor”).

24

128

9

CFPB Regs

• Tell the servicer in writing that your client is

the successor owner of the home

• Request information about the loan and

available loss mitigation options

• Cite 12 CFR § 1024.38(b)(1)(vi); CFPB

Bulletin 2013-12 (Oct. 15, 2013)

(Proposed rules are much more detailed and include private right of action, but not yet final.)

Servicer Noncompliance• Send a Notice of Error under RESPA, 12 CFR

§ 1024.35.

– Set up a private right of action for servicer’s failure to correct the error

– Actual damages, costs, attorney’s fees

– Statutory damages if pattern and practice

• Tell the CFPB!

– Send an email to: [email protected].

– File a complaint: www.consumerfinance.gov

• HAMP Solutions Center or GSE escalation

26

Can your client bring a claim under RESPA?

Did client sign the mortgage/deed of trust?

• “Borrower” is not defined in RESPA and Reg. X

• “Borrower” is defined in the Uniform Security Instrument in the

definition section as follows:(B) “Borrower” is

__________________________________________________________. Borrower is the grantor under this Security Instrument.

• The signature line in the Security Instrument refers to the

person signing as the “borrower.”

• Paragraph 1 of the Security Instrument obligates the

borrower/grantor to make payments under the note

• Paragraph 13 states borrower/grantor who does not also sign note is not personally obligated to make payments, but a

default still results in the loss of the grantor’s property interest.

129

10

Can your client bring a claim under RESPA?

• Washington v. Am. Home Loans, 2011 WL 11651320, at *2 (C.D. Cal. Nov. 12, 2011) (signatory of deed of trust has standing to bring a RESPA claim)

• Barzelis v. Flagstar Bank, F.S.B., __ F.3d __, 2015 WL 1849650 (5th Cir. Apr. 22, 2015) (spouse not obligated on the promissory note, by virtue of the state’s community property laws, could pursue a RESPA claim)

• Has client assumed the note? – See Brush v. Wells Fargo Bank, N.A., 911 F.Supp.2d 445 (S.D.

Tex. 2012) (explaining contractual right to assume a mortgage)

• Is client the representative of the estate? – See Kralovic v. JP Morgan Chase Bank, N.A., 2015 WL 252315

(N.D. Ohio Jan. 20, 2015); Wilson v. Bank of America, 48 F.Supp.3d 787 (E.D. Pa. Sept. 24, 2014).

Possible Legal Claims

– Breach of contract

– Breach of duty of good faith and fair dealing

– Promissory estoppel

– Negligence

– UDAP (but exception for regulated areas?)

– FDCPA

– RESPA – failure to respond to NOE

– Court’s equitable powers

– Lack of good faith in settlement conferences/mediation program

– State-specific laws29

Discrimination Claims

• FHA and ECOA

• Protected class:

– Women?

– Elderly?

• Disparate impact vs. disparate treatment

• Getting data

30

130

11

Good case law• Brush v. Wells Fargo Bank, N.A., 911 F.Supp.2d

445, 459-462 (S.D. Tex. 2013) (successor had the right to assume the mortgage, and had in fact assumed by signing loan mod agreement)

• McGarvey v. JPMorgan Chase Bank, N.A., 2013 WL 5597148 (E.D. Cal. Oct. 11, 2013) (allowing claims for negligence and unfair and deceptive practices to proceed where mortgage servicer led successor to believe she would be approved for a loan modification)

• Wilson v. BOA, 2014 WL 4744555 (E.D. Pa. 2014) (RESPA, UDAP, breach of contract TPP)

31

Servicer-specific Info• Citi took forever to implement the rules requiring mod +

assumption for successors. Just recently got it set up. Be sure that your client is compensated for the cost (accrued interest) of any delay.

• At last check, Chase – Had a bizarre, two-phase review process for successors, and– only reviewed successors for proprietary mods w/o a trial plan

b/c it takes the position that it can’t collect trial plan payments from non-borrowers. (Fannie has waived TPP; Problem for Freddie and FHA loans)

• Nationstar seems to have little to no infrastructure to address the successor situation.

• Wells periodically refuses to speak with third parties authorized by a successor.

• Note re: successors and Hardest Hit Fund programs

The Bankruptcy Option

• Basic principle in bankruptcy that a “claim” includes a debt secured by the debtor’s home, even if debtor has no personal liability on the note.

• Non-borrowers that are protected under GSG must be allowed to de-accelerate the note and cure arrearage in a chaper 13 plan. – See In Re Jordan, 199 B.R. 68 (Bankr. S.D. Fla. 1996); In Re

Curinton, 300 B.R. 78 (M.D. Fla 2003); Citicorp Mortg. v. Lumpkin, 144 B.R. 240 (Bankr. D. Conn. 1992); In Re Alexander, 20 Fla. L. Weekly Fed. B 463 (Bankr. N.D. Fla. 2007); see also Johnson v. Home State Bank, 501 U.S. 78 (1991).

• Servicer required by bankruptcy court to engage with GSG-protected debtor in bankruptcy loss mitigation procedures, even though bankruptcy debtor was not on the note and mortgage. In Re Smith, 469 B.R. 198 (Bankr. S.D. N.Y. 2012).

33

131

DeKalb County, Georgia August 19, 2013

Loan Assumption Agreement and Notice

Ocwen Loan Servicing, LLC on behalf of U.S. Bank National Association, as Trustee for the C-BASS Mortgage Loan Asset-Backed Certificates, Series 2006-RP2 Re: Mortgage Loan # XXXXX1234 Property Address: 1234 Stonecrest Drive, Stone Mountain, Georgia 30083 Mortgagors: John and Jane Doe Original Borrower: John Doe Original Loan Amount: $104,500 Loan Date: April 28, 2000 Security Deed recorded at Deed Book 1234, Page 111, DeKalb County, Georgia, and assigned at Deed Book 2345, Page 222, DeKalb County, Georgia I obtained an undivided one-half interest in the property at 1234 Stonecrest Drive, Stone Mountain, Georgia (“the Property”) when my late husband John Doe and I purchased it on September 14, 1998. We owned the Property as joint tenants with right of survivorship, pursuant to a warranty deed dated September 14, 1998, recorded at Deed Book 1212, Page 112, DeKalb County, Georgia. On October 8, 2008, my husband John Doe died, and I became the successor in interest to his one-half interest in the Property. The Property is subject to a mortgage loan comprised of a note and security deed executed April 28, 2000. I am hereby memorializing my promise to pay this debt. I hereby assume the note. I ratify and affirm the note and specifically assume and agree to pay the debt memorialized in the note and secured by the above-referenced security deed. I agree to be bound by all of the terms, provisions and obligations contained in the note and security deed. Nothing herein contained shall be construed as releasing the original borrower, John Doe, from any liability or obligation under the aforesaid note or security deed. In witness whereof, I have executed this Loan Assumption Agreement and Notice, this 19th day of August, 2013. ________________________ Jane Doe Sworn to and subscribed before me this day of ____________, 2013 ________________________________ NOTARY PUBLIC My Commission Expires:

132

1

1700 G Street, N.W., Washington, DC 20552

CFPB Bulletin 2013-12

Date: October 15, 2013

Subject: Implementation Guidance for Certain Mortgage Servicing Rules

The Consumer Financial Protection Bureau (CFPB) is issuing this bulletin to provide guidance in implementing certain of the 2013 Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) Servicing Final Rules.1 The CFPB issued the 2013 RESPA and TILA Final Rules in January 2013 and they take effect on January 10, 2014. This bulletin provides guidance regarding:

1. Policies and procedures servicers must maintain regarding the identification

of and communication with any successor in interest of a deceased borrower with respect to the property secured by the deceased borrower’s mortgage loan.2

2. Communication with borrowers under the Early Intervention Rule.3

3. Servicers’ obligation to provide certain notices/communications to borrowers who have exercised their right under the Fair Debt Collection Practices Act (FDCPA)4 barring debt collectors from communicating with them.5

1. Policies and Procedures Regarding Successors in Interest to the Property of a

Deceased Borrower In response to inquiries it has received, the CFPB is issuing guidance regarding the policies and procedures servicers of mortgage loans must have in place to comply with requirements

1 78 FR 10695 (Feb. 14, 2013) (RESPA Servicing Final Rule); 78 FR 10901 (Feb. 14, 2013) (TILA Servicing Final Rule), collectively the 2013 RESPA and TILA Servicing Final Rules. Regulations X and Z implement RESPA and TILA, respectively. RESPA and Regulation X generally refer to “borrowers” and TILA and Regulation Z to “consumers;” for simplicity those terms are used interchangeably in this bulletin. 2 12 CFR 1024.38(b)(1)(vi), as published in 78 FR 10695 (Feb. 14, 2013). 3 12 CFR 1024.39, as published in 78 FR 10695 (Feb. 14, 2013). 4 15 U.S.C. 1692 et seq. 5 Section 805(c) of the FDCPA prohibits a debt collector from most communications with a consumer regarding the debt at issue, if the consumer has sent a “cease communication” request. 15 U.S.C. 1692c(c).

133

2

in the Policies and Procedures Rule regarding successors in interest.6 Starting on January 10, 2014, a servicer must have policies and procedures reasonably designed to ensure that, upon notification of the death of a borrower, the servicer promptly identifies and facilitates communication with a successor in interest7 of the deceased borrower with respect to the property that secures the deceased borrower’s mortgage loan. In issuing this guidance, the CFPB seeks both to assist servicers in implementing these policies and procedures and to promote home retention whenever possible for successors in interest faced with the loss of their homes due to the death of a borrower.

The CFPB adopted the successor in interest provision of the Policies and Procedures Rule after learning about difficulties that some surviving spouses, children, or other successors in interest experienced in attempting to communicate with servicers.8 The CFPB has received reports of servicers either outright refusing to speak to a successor in interest or demanding documents to prove the successor in interest’s claim to the property that either do not exist (e.g., probate court documents for an estate that is not required to go through probate) or are not reasonably available. These practices often prevent a successor in interest from pursuing assumption of the mortgage loan and, if applicable, loss mitigation options—potentially resulting in the avoidable loss of the home. In applying the Policies and Procedures Rule, the CFPB seeks to reduce the number of unnecessary defaults and foreclosures, including those following the death of a borrower. The following are examples of servicer practices the CFPB would consider to be components of policies and procedures that are reasonably designed to achieve the objectives of the successor in interest provision:

Promptly providing to any party claiming to be a successor in interest a list of all documents or other evidence the servicer requires, which should be reasonable in light of the laws of the relevant jurisdiction, for the party to establish (1) the death of the borrower and (2) the identity and legal interest of the successor in interest. Such documents might include, for example, a death certificate, an executed will, or a court order determining a succession to real property.

Upon notification of the death of a borrower, promptly identifying and evaluating any issues that the servicer must consider in reviewing the rights and obligations of successors in interest with respect to the property and mortgage loan, including, for example:

o Receipt of acceptable proof of the successor in interest’s identity and legal interest in the property.9

6 12 CFR 1024.38(b)(1)(vi), as published in 78 FR 10695 (Feb. 14, 2013). 7 A successor in interest is the spouse, child, or heir of a deceased borrower or other party with an interest in the property. 8 While the CFPB recognizes that some of these experiences involved reverse mortgages, which are exempt from the requirements of the Policies and Procedures Rule, others involved mortgage loans that will be subject to the rule when it goes into effect. See 12 CFR 1024.30(b)(2), as published in 78 FR 10695 (Feb. 14, 2013). 9 The servicer may be subject to specific investor requirements with respect to the successor in interest’s rights and obligations. For example, a February 2013 bulletin from Freddie Mac requires servicers to refer to it any case “where the servicer is unsure as to whether a purported transferee has a legal or beneficial interest in the

134

3

o Standing of the mortgage loan as current or delinquent.

o Eligibility of the successor in interest to continue making payments on the mortgage loan.

o Whether a trial modification or other loss mitigation option was in place at the time of the borrower’s death.

o Whether there is a pending or planned foreclosure proceeding.

o Eligibility of the successor in interest for loss mitigation options.

o Eligibility of the successor in interest to assume the mortgage loan, with or without a simultaneous loan modification or other loss mitigation option.

Promptly providing successors in interest with information about the above issues, including any servicer prerequisites for the successor in interest to: continue payment on the mortgage loan, assume the mortgage loan, and, where appropriate, qualify for available loss mitigation options.

Promptly providing successors in interest with any documents, forms, or other materials the servicer requires for the successor in interest to continue making payments and to apply and be evaluated for an assumption and, where appropriate, loss mitigation options.

Upon receipt from the successor in interest of required documents, forms or other materials, promptly evaluating the successor in interest for and, where appropriate, implementing options set forth above.

Providing employees with information and training regarding the effect of laws and investor and other requirements on the servicer’s obligations following the death of a borrower, and complying with those laws and requirements, including:

o Servicing guidelines, such as those published by Fannie Mae and Freddie Mac,10

property, but that person is willing to assume the Mortgage obligation.” Freddie Mac Bulletin No. 2013-3 (Feb. 15, 2013), available at http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1303. pdf (“Freddie Mac Bulletin”). 10 For example, in February 2013, Fannie Mae published guidance requiring servicers to “to allow the new owner to continue making mortgage payments and pursue an assumption of the mortgage loan as well as a foreclosure prevention alternative, if applicable.” Where a successor in interest cannot bring the loan current without a foreclosure prevention alternative, including a loan modification, the guidance states that “the servicer must collect a Borrower Response Package from the new property owner and evaluate the request as if they were a borrower.” Fannie Mae, Lender Letter LL-2013-04 (Feb. 27, 2013), available at https://www.fanniemae.com/ content/announcement/ll1304.pdf. See also Fannie Mae, Servicing Guide Announcement SVC-2013-17 (Aug. 28, 2013) available at https://www.fanniemae.com/content/announcement/svc1317.pdf. Also in February 2013, Freddie Mac published guidance requiring servicers to follow similar procedures regarding assumptions and loss mitigation options for successors in interest. See n.27. Both Fannie Mae and Freddie Mac require servicers to submit recommendations to them for approval of a simultaneous mortgage assumption and loss mitigation option.

135

4

o The Garn-St. Germain Act of 1982,11 which imposes certain limits on the application of due-on-sale clauses when real property is transferred as a result of the death of a borrower, and

o Federal or State law restricting the disclosure of the deceased borrower’s non-public personal information.

In addition to the above, servicers should consider whether best practices with regard to their policies and procedures regarding successors in interest would include the following:

Upon notification of the death of a borrower, promptly evaluating whether to postpone or withdraw any pending or planned foreclosure proceeding to provide a successor in interest with reasonable time to establish ownership rights and pursue assumption and, if applicable, loss mitigation options.

Promptly providing a successor in interest with information about the possible

consequences of assuming the mortgage loan, such as any costs and the fact that a later loss mitigation option is not guaranteed if the successor in interest assumes the loan without a loss mitigation option already in place or arranged to commence simultaneous with the assumption.

2. Communications with Borrowers under the Early Intervention Rule

The CFPB is issuing guidance to clarify how a servicer may comply with the requirements in the Early Intervention Rule to make good faith efforts to establish live contact with a borrower.12 For purposes of the Early Intervention Rule, “[d]elinquency begins on the day a payment sufficient to cover principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid.”13 Thus, once the rule goes into effect, for each billing cycle for which a borrower is delinquent for at least 36 days, servicers are required to make good faith efforts to establish live contact with the borrower by the 36th day and, if appropriate, to inform the borrower about the availability of loss mitigation options.14 Commentary to the Early Intervention Rule states that good faith efforts to establish live contact consist of “reasonable steps under the circumstances to reach a borrower and may include telephoning the borrower on more than one occasion or sending written or electronic communication encouraging the borrower to establish live contact with the servicer.”15 The CFPB emphasizes that the rule is specifically designed to give servicers significant flexibility in tailoring their contact methods to particular circumstances. For delinquencies that begin

11 12 U.S.C. 1701j-3(d)(3). 12 12 CFR 1024.39, as published in 78 FR 10695 (Feb. 14, 2013). 13 12 CFR 1024.39, Supplement I to Part 1024—Official Bureau Interpretations, Comment 39(a)-1, as published in 78 FR 10695 (Feb. 14, 2013). Note that this interpretation of delinquency is particular to the Early Intervention Rule and the Continuity of Contact Rule. Id. at 1024.40 and Comment 1024.40(a)-3. 14 The Early Intervention Rule also requires that a written notice be sent to the borrower not later than the 45th day of delinquency, unless the borrower has submitted payment in the meantime. However, in contrast to the live contact rule, the written notice is required no more than once during any 180-day period. Thus, written notice provided to a borrower pursuant to the rule need not be provided again for 180 days, even if another delinquency occurs and the 45th day after that delinquency falls within the 180-day timeframe. 15 12 CFR 1024.39, Supplement I to Part 1024—Official Bureau Interpretations, Comment 39(a)-2, as published in 78 FR 10695 (Feb. 14, 2013).

136

5

on or after January 10, 2014,16 the CFPB would consider the following communications reasonable steps under the circumstances to establish live contact:

Borrower working with servicer to obtain loss mitigation: The live contact requirement is satisfied with regard to cases in which a borrower is delinquent in consecutive billing cycles if the servicer has established and is maintaining ongoing contact with the borrower with regard to the borrower’s completion of a loss mitigation application and the servicer’s evaluation of that borrower for loss mitigation options.

Borrower stops paying under a loss mitigation plan or becomes delinquent after curing a prior default: As specified in the commentary to the final rule, a borrower is not delinquent under the rule if “performing as agreed under a loss mitigation option designed to bring the borrower current on a previously missed payment . . . .”17 This includes forbearance plans and trial modifications. However, if the borrower fails to make a loss mitigation payment, a new delinquency begins and the servicer has an obligation to make good faith efforts to contact the borrower within 36 days of the start of the delinquency— and for each of any subsequent billing periods for which the borrower’s obligation is due and unpaid. Similarly, if a borrower successfully cures a prior default but becomes delinquent again, the servicer has an obligation to make good faith efforts to contact the borrower within 36 days for each of the subsequent billing periods for which the borrower’s obligation is due and unpaid. Communication in conjunction with other contact: A servicer may, but need not, rely on live contact established at the borrower’s initiative to satisfy the live contact requirement. Servicers may also combine contacts made pursuant to the Early Intervention Rule with contacts made with borrowers for other reasons, for instance by adding a brief script to collection calls to inform consumers that loss mitigation options may be available in accordance with the rule. Unresponsive borrower: The CFPB believes that a borrower’s failure to respond to a servicer’s repeated attempts at communication pursuant to the Early Intervention Rule is a relevant circumstance to consider. For example, “good faith efforts” to establish live contact with regard to delinquencies occurring after six or more consecutive delinquencies might require no more than making a single telephone call or including a sentence requesting the borrower to contact the servicer with regard to the delinquencies in the periodic statement18 or in an electronic communication. Such

16 Servicers are not required to comply with the Early Intervention Rule and the Continuity of Contact Rule with regard to a billing period prior to January 10, 2014, for which a borrower is delinquent. For example, for a borrower whose payment is due and unpaid on January 9, 2014 for that particular billing cycle, compliance is not required under either rule unless and until the borrower is delinquent again for a later billing cycle. 17 12 CFR 1024.39, Supplement I to Part 1024—Official Bureau Interpretations, Comment 39(a)-1.ii, as published in 78 FR 10695 (Feb. 14, 2013). 18 12 CFR 1024.41, as published in 78 FR 10695 (Feb. 14, 2013) and amended by the final rule issued on September 13, 2013, available at http://files.consumerfinance.gov/f/201309_cfpb_titlexiv_updates.pdf. For example, this statement could appear at the bottom of the delinquency box or in a section reserved for messages from the servicer. 12 CFR 1026.41(d)(8) and 1026.41(c)-2, respectively, as published in 78 FR 10901 (Feb. 14, 2013). Placement of the statement at the bottom of the delinquency box would not conflict with the “close proximity” requirement applicable to delinquency information.” Id. at 1026.41(d)(8).

137

6

efforts might be appropriate where there is little or no hope of home retention, such as when all applicable loss mitigation possibilities have been exhausted (including a short sale or deed in lieu of foreclosure), as may occur in the later stages of foreclosure. 3. Servicing Rule Requirements with Regard to Borrowers Prohibiting Debt

Collectors from Communicating with Them. The CFPB is issuing guidance regarding the interplay between certain of the 2013 RESPA and TILA Servicing Final Rules and the Fair Debt Collection Practices Act (FDCPA).19 The CFPB is providing this bulletin as an advisory opinion interpreting the FDCPA “cease communication” requirement in relation to the 2013 Mortgage Servicing Final Rules discussed below, under FDCPA section 813(e), 15 U.S.C. 1692k(e). As provided in that section, no liability arises under the FDCPA for an act done or omitted in good faith in conformity with an advisory opinion of the CFPB while that advisory opinion is in effect. The FDCPA grants debtors the right generally to bar debt collectors from communicating with them. 20 To the extent the FDCPA applies to a servicer’s activities regarding a borrower, the “cease communication” provision of the FDCPA may make such a servicer uncertain whether it will be liable under the FDCPA for carrying out certain communications required by the servicing rules. This bulletin addresses such a servicer’s obligation with regard to certain provisions of the servicing rules requiring disclosures to and communications with borrowers who have defaulted on the payments of their mortgage loans when they have instructed the servicer to cease communicating with them. The CFPB concludes that the FDCPA “cease communication” option does not generally make servicers that are debt collectors liable under the FDCPA if they comply with certain provisions of Regulation X (12 CFR 1024.35 (error resolution), 1024.36 (requests for information), 1024.37 (force-placed insurance), and 1024.41 (loss mitigation)) and Regulation Z (12 CFR 1026.20(d) (adjustable-rate mortgage (ARM) initial interest rate adjustment) and 1026.41 (periodic statement)). For the reasons discussed below, the CFPB concludes that a servicer that is considered a debt collector under the FDCPA with respect to a borrower that provides disclosures to and communicates with the borrower pursuant to the provisions listed above, notwithstanding a “cease communication” instruction sent by the borrower, is not liable under the FDCPA. This conclusion does not extend to the notices/communications required by 12 CFR 1024.39 (Early Intervention Rule) and 12 CFR 1026.20(c) (ARM Interest Rate Adjustment with Corresponding Payment Change Rule). See Interim Final Rule, available at http://www.consumerfinance.gov/regulations.

Error Resolution, Information Requests, and Loss Mitigation Rules21

19 15 U.S.C. 1692 et seq. 20 Section 805(c) of the FDCPA generally prohibits debt collectors from communicating with consumers regarding a debt after having received a written “cease communication” request. 15 U.S.C. 1692c(c). 21 12 CFR 1024.35 and 1024.36, as published in 78 FR 10695 (Feb. 14, 2013), and 12 CFR 1024.41, as published in 78 FR 10695 (Feb. 14, 2013) and amended by the final rule issued on September 13, 2013, available at http://files.consumerfinance.gov/f/201309_cfpb_titlexiv_updates.pdf.

138

7

These servicing rule provisions, respectively, require servicers to (1) investigate and resolve certain borrower-reported errors relating to the servicing of the borrower’s mortgage loan, (2) respond appropriately to borrower requests for information with respect to a borrower’s mortgage loan, and (3) consider appropriately a borrower’s loss mitigation application. The CFPB believes that a borrower’s “cease communications” request pursuant to the FDCPA should ordinarily be understood to exclude these categories of communication, because the borrower has specifically requested the communication at issue. Even if the borrower sends a “cease communications” request while a specific action the borrower requested of the servicer is in process, the borrower usually should be understood to have excluded the specific action from the general request to cease communication. Thus, only if the borrower sends a communication to the servicer specifically withdrawing the request for such action may a servicer cease to carry out the requirements of these provisions.

Force-Placed Insurance, ARM Initial Interest Rate Adjustment, and Periodic Statement Rules22 These servicing rule provisions, respectively, require the servicer to provide borrowers with (1) disclosures regarding the forced placement of hazard insurance, (2) a disclosure regarding an ARM’s initial interest rate adjustment, and (3) a periodic statement for each billing cycle. The CFPB has determined that a servicer acting as a debt collector would not be liable under the FDCPA for complying with these requirements despite a consumer’s “cease communication” request. These disclosures are specifically mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),23 which makes no mention of their potential cessation under the FDCPA and presents a more recent and specific statement of legislative intent regarding these disclosures than does the FDCPA. Moreover, the CFPB believes that these notices provide useful information to consumers regardless of their collections status.

For more information about the implementation of the 2013 RESPA and TILA Servicing Final Rules and other new mortgage rules issued by the CFPB, visit http://www.consumerfinance.gov/regulatory-implementation. Guidance inquiries may be directed to [email protected] or (202) 435-7700.

22 12 CFR 1024.37, as published in 78 FR 10695 (Feb. 14, 2013); 12 CFR 1026.20(d), as revised by 78 FR 10901 (Feb. 14, 2013) and 12 CFR 1026.41, as published in 78 FR 10901 (Feb. 14, 2013), respectively. 23 Public Law 111-203, secs. 1418, 1420, 1463, 124 Stat. 1376 (2010). Dodd-Frank Act sections 1418 (ARM initial interest rate adjustment), 1420 (periodic statements), and 1463 (force-placed insurance). Servicers are not required to provide periodic statements to borrowers in bankruptcy. See Interim Final Rule, available at http://www.consumerfinance.gov/regulations.

139

1


Saving Homes in Bankruptcy


June 2, 2016

*Fresh Start for Debtors

*Fair and Equitable Distribution of

Non-Exempt Assets to Creditors

Key Bankruptcy Concepts

Fresh Start

Fair and Equitable Distribution among

Creditors

Automatic Stay

Exemptions

Discharge

Avoiding preferential transfers to creditors

Claims bifurcation

Pro rata distribution among creditors

140

2

The Automatic Stay

Limits of the Stay: Repeat Filers

Date petition

filed

One year

Within one year before filing:One dismissal = auto stay for 30 days (unless extended)Two or more dismissals = no automatic stay! (§ 362(c))

Eligibility to File: Repeat Filers

Date petition

filed

180 days

Within 180 days before filing:Voluntary dismissal after a Motion for Relief from Stay?Court order dismissing with prejudice for willful failure?= Ineligible to file, and no auto stay (§ 109(h), § 362(b)(21))

141

3

The Bankruptcy Estate

7

1. Debtor’s

assets go into the estate upon

filing

2. Property

claimed as exempt comes out of the

estate

Debtor’s

prepetition assets

Debtor’s exempt

property, part of the fresh start

Chapter 7 vs. Chapter 13

Chapter 7 Chapter 13

* Creditors get paid from

liquidation of any non-exempt

assets

* Creditors get paid from

Debtor’s disposable income

over a 3-5 year payment plan

* If Debtor owns property

beyond what she is allowed to

claim as exempt, the Trustee may sell it

* Debtor gets to keep non-

exempt assets

* Case is over and discharge is

entered in about 4-6 months

Case is over and discharge is

entered after the Debtor

completes plan payments (3-5 years)

Credit Counseling

Filing Fee/Fee Waivers

Means Test

142

4

Why not Chapter 7?

Secured Creditors Stay Secured

• Unless a Court orders otherwise, the lien (or security

interest) survives the bankruptcy

• Thus, secured creditors will still be able to foreclose on a home or seize other property if consumer is in default

– They may file a motion for relief from stay or wait for the

discharge to be entered

• Personal liability on secured debts is wiped out (no deficiency after foreclosure, for example)

Saving Homes In Chapter 13

Secured Claims

• “Allowed secured claim” is limited to the

value of the collateral – § 506(a)

• Undersecured claims may be bifurcated

into their secured and unsecured portions

143

5

Debt Owed - $10,000

Value- $6,000

Allowed Secured Claim

$6,000

Allowed

Unsecured Claim$4,000

144

6

Anti-modification Rule (mortgage on principal residence)

Section 1322(b)(2) – The plan may “modify the rights of holders of secured claims, other than a claim secured

only by a security interest in real property that is the

debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims”

So… what can you do?

• Automatic Stay to stop foreclosure

• Cure and maintain the mortgage (unwind acceleration)

• Apply for loan mod while in ch 13

• Modify/strip off some mortgages

• Avoid judicial liens

Cure and

Maintain

145

7

Right to Cure

• 1322(b)(5) the plan may provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any claim in which the last payment is due after final plan payment

• Arrearages include reasonable pre-petition foreclosure costs

• All payments are made under the plan even if debtor disburses ongoing maintenance payments.

POC Requirements

Payment Change

Notices

Notice of Fees or

Charges

Notice of Final Cure

Proof of Claim Requirements

• For all claims, itemized statement of interest, fees and other charges

• For security interest in debtor’s property, amount necessary to cure any default

• For security interest in debtor’s principal residence, Official Form B10, Attachment A and mortgage escrow statement prepared as of petition date

146

8

Payment Change Notices

• Applies to security interest in debtor’s principal residence treated in plan under § 1322(b)(5)

• Notice of payment change 21 days priorto change – Fed. R. Bankr. P. 3002.1(b)

Notice of Fees and Charges

• Applies to security interest in debtor’s principal residence treated in plan under § 1322(b)(5)

• Notice of fees or charges imposed during the chapter 13 case, no later than 180 days after fees incurred – Fed. R. Bankr. P. 3002.1(c)

• 180-day period based on date when fees “incurred,” not when advanced or determined to be recoverable

Notice of Final Cure

• Notice of final cure filed by trustee no later than 30

days after plan completion - Fed. R. Bankr. P. 3002.1(f)

• If trustee does not file the notice and debtor believes all cure and plan payments have been made, debtor may file notice

• Mortgage holder must file a response

• If response says the loan is not current, debtor may object and court will determine after notice & hearing

• Mortgage holder who does not respond may be barred from later presenting evidence to the contrary

147

9

Loss Mitigation

and Litigation

in Bankruptcy

Loss Mit in Bankruptcy

• Borrower may apply for a loan mod during bankruptcy (or continue with an application that was initiated prior to the bankruptcy)

• No HAMP rule prohibits mods while in bankruptcy (MHA Handbook, Ch. II, §§ 5.2, 8.6)

– Fannie Mae: at servicer’s discretion, § 609.01

– Freddie Mac: borrower in active bk must be considered if borrower, borrower’s attorney, or the trustee submits request; § C65.7.1

• Bankruptcy attorney may have to sign a form or send a letter authorizing servicer to keep communicating with borrower or the borrower’s 3P rep

26

Loss Mit in BankruptcyOptions for the Ch. 13 Plan:

1) Standard plan to cure mortgage arrears

• Can client afford it? Does this contradict the request for mod?

2) Plan for a loan mod, saying arrears will be cured through loan mod and including the anticipated modified payment of 31% of debtor’s gross monthly income in the budget (may serve as pre-confirmation adequate protection)

• In re Arizmendi, 2011 WL 2182364 (Bankr. S.D.Cal. May 26, 2011) (finding that TPP payments provided sufficient adequate protection even though contract interest not being paid)

3) Confirmable plan with lump sum at the end to treat the arrearage

• Feasibility is based on the expected loan modification* Remember the binding effect of plan confirmation order.

27

148

10

Bankruptcy and HAMPCourt Approval of loan mods:

• Servicer and its counsel must work with borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures.

– MHA Handbook Ch II, 8.5

• In re Smith, 409 B.R. 1 (Bankr. D. N.H. 2009) (finding that motion for approval of loan mod. does not present court with a case or controversy unless filed in connection with proceedings for stay relief, plan confirmation, or plan modification)

28

Loss Mit/Litigation in Bankruptcy

• RESPA Reg on Loss Mitigation, 12 USC 1024.41, does not have a bankruptcy exemption!

• Servicer must acknowledge application and notify borrower if it is complete, docs needed to complete it (and deadline) within 5 business days

• Servicer must evaluate within 30 days of receipt of a complete application

• Dual tracking restrictions (use them to argue against Motion for Relief from Stay?)

• Consider filing an Adversary Proceeding for a claim under RESPA

Stripping Off

2nd Mortgages

149

11

Anti-modification Provision

Section 1322(b)(2) – The plan may “modify the rights of holders of secured claims, other than a

claim secured only by a

security interest in real

property that is the debtor’s

principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims”

Parsing the Language

Section 1322(b)(2) – The plan may “modify the rights of holders of secured claims, other than aclaim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims”

Underwater Homes

Value of Home: $120,000Amount due on First

Mortgage: $125,000Amount due on Second Mortgage: $15,000

Total Amount of debt: $140,000

150

12

Underwater Mortgages

Value of home

$120,000

Underwater Mortgages

Value of home

$120,000

Amount owed on first mortgage

$125,000

Undersecured by $5,000

Underwater Mortgage

Value of home

$120,000

Amount owed on first mortgage

$125,000

Amount owed on second mortgage - $15,000

Undersecured by $5,000

151

13

Doing the Calculations

• If total of all senior liens equal or exceed property’s value, junior lien creditor has no allowed secured claim

• Homestead Exemption not considered

• Other considerations:

– Effect of first lien loan mod with principal reduction?

Proving Value of the Property• Valuation date (three approaches):

– Petition date– Effective date of plan (helpful in declining market)– Flexible approach

• Discovery– Obtain pre-foreclosure appraisal by servicer– Make use of request for admissions

• Debtor may initially rely upon BPO or recent appraisal, but will need appraiser to testify if value contested

• Debtor may testify as to condition of property, neighborhood, etc. as lay witness (F. Rule Evid. 701)

Strip Off Procedure

*Check Local Decisions, Rules and Practice

Adversary proceeding?

– Complaint to determine validity and extent of lien

• Motion/Contested matter?

– Motion to determine value of claim secured by lien (Rule 3012)

• Chapter 13 plan provision

– Make explicit and serve under Rule 7004 (due process)

• Objection to Claim

– Avoid decisions on preclusive effect of claim allowance process

152

14

Other

Permissible

Mortgage

Modifications


Section 1322(b)(2) – The plan may “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims”

Mobile Homes

Loans on mobile homes that are considered personal property

under state law are not subject to the anti-

modification provision

153

15

Multi-family Buildings

Modification permitted when other real

property, such as rental units, is part of

security interest


Section 1322(c)(2): “in a case in which the last

payment on the original payment schedule for a claim secured only by… the debtor’s principal residence is due before the date on

which the final payment

under the plan is due…”… may be modified.

Short-term loan/ final payment within next 5 years

Loans where the final payment will come due within the term of the

chapter 13 plan are not subject to the anti-

modification provision

(people near the end of their 30-year mortgage…)

154

16

Lien

Avoidance

Lien Avoidance• Debtor may avoid “fixing of a lien” on interest of the

debtor in property to the extent the lien impairs an exemption

• Judicial liens• A lien shall be considered to impair an exemption to

the extent that the sum of –

– the lien;– all other liens on the property; and– the amount of the exemption that the

debtor could claim if there were no liens on the property;

– exceeds the value that the debtor’s interest in the property would have in the absence of any liens

• Courts have held that this formula is to be applied literally

155

5/24/2016

1


Overview of Tax Issues


June 2, 2016

Discharge of Indebtedness

(Cancellation of Debt)

• Whenever debt is forgiven, normally

treated as income

• Why?

– Income received when loan taken out

– But not taxed because of obligation to repay

• Interest & fees need not be treated as

DOI, only principal

Examples of DOI

• Foreclosure sale, if for less than amount of debt & lender does not seek deficiency judgment

• Short sale

• Loan modification with reduction of principal

• Theoretically, loan modification with significant interest reduction or principal forbearance

156

5/24/2016

2

Why Does DOI Matter?

• Lenders usually file 1099-C’s.

• If borrower does not report the DOI

income on her tax return, the IRS’s

automated audit system will pick it up.

• Borrowers can get dunned by IRS for

interest and penalties on underreported tax

Common Exclusions from DOI

• Bankruptcy (timing is important!)• Insolvency

Can’t pay

• 2016 extension

Acquisition (qualified principal residence) indebtedness

• Disputed indebtedness• Fraud in purchase

Illegal debt

The Bottom Line

• Homeowner needs to know why the debt was discharged and how much

• Homeowners must:– File long form 1040

– Attach Form 982

• If a homeowner gets a dunning notice from the IRS, they can contest it

• These issues are out of scope for VITA and Tax Counseling for the Elderly sites, with a few limited exceptions

157

5/24/2016

3

The Special Case of HAMP Principal

Reduction Modifications

(General Welfare Payments)

Annual borrower incentive payments under HAMP (pay-for-performance) don’t count as income

• IRS Rev. Rul. 2009-19

Payments to the investors to encourage principal reductions, subsidize loan modifications don’t count as income.

• IRS Rev. Proc. 2013-16, at 14

Payments made to or on behalf of borrowers under the Hardest Hit programs don’t count as income.

• IRS Notice 2011-14, 2011-11 I.R.B. 544

158

1


The Role of Mediation in

Foreclosure Loss Mitigation


June 2, 2016

State Responses to Need for Loan Modifications: Mediation/Conference Programs

• Seventeen states have required by statute

or court rule some type of mediation/conference requirement to

consider loan modification before

foreclosure.

Labels

• The process itself: mediation, diversion,

conference, ADR, conciliation

• The outside third party: mediator, referee,

facilitator, judge pro tem.

159

2

Authority for Foreclosure Mediation Programs

• State Statutes: Connecticut, Delaware, New York, California, Michigan, Indiana, Oregon,

Nevada, Maine, Maryland, Washington, Hawaii, Vermont, Rhode Island, D.C.

• State Supreme Court plans: Ohio, New

Jersey

• Many local court initiatives, including Pennsylvania (Philadelphia & Pittsburgh),

Illinois counties.

Procedural Variations

• Programs requiring opt-in over limited time: Ohio, New Jersey, Maryland, Nevada

• How much time?• Other procedural limits

• Programs with automatic participation: Delaware, New York, Connecticut, Philadelphia

• Stay of proceedings

• Automatic or must request• Must file motion

Foreclosure Mediation Programs

• Can require authorized representative of

mortgage holder to meet with borrower.

• Can require compliance with mediation

rules as condition to proceeding with foreclosure.

• Can require consideration of specific loan modification and other workout options.

160

3

Mediation: Things a Servicer May be Asked to do

• In certain programs (depending on

jurisdiction) may be asked to:

– Provide document showing modification/NPV analysis

– Provide specified documents: psa, loan

origination docs, appraisal, payment history

Mediation: Things a Mediator May be Asked to do

• In certain programs:

– May certify compliance with servicer obligations.

– May not allow foreclosure to proceed unless servicer has complied with mediation obligations:

• Produced documents

• Show considered all options

Common Servicer Practices Mediations Can Address

• Incorrectly stating not a HAMP participant

• Incorrectly stating investor does not permit HAMP modifications

• Offering non-HAMP mods with less favorable terms

• Demanding redundant, unnecessary documents not required under Handbook

• Routine loss of documents

• Erroneously stating did not receive documents

161

4


• Demanding fees and charges for HAMP mod

• Referral to foreclosure, proceeding with foreclosure, or conducting sale in violation of foreclosure stop requirements of Handbook § 3

• Foreclosure upon borrower current in trial plan

• Negative credit reporting while non defaulting

borrower current under trial plan

• Extension of trial plans beyond date of

conversion promised in trial agreement


• Soliciting HAMP application, then refusing

to give decision

• Failure to send accurate notices of

denial/cancellation, or missing documentation (Handbook § 2.3)

• Failure to disclose NPV data as required by Dodd-Frank

Connecticut Mediation Program

• Data provided by the Connecticut Judiciary covering the period from July 2008 through Dec. 2015 indicates as follows:

• 24,000 completed mediations

• 70% settlement with agreement to stay in home

• 15% settled with agreement to move from home

• 15% had not settled, foreclosure action continued

• In 84% of mediations completed with agreement for borrower to stay, borrower received permanent loan modification

162

5

The nonprofit National Consumer Law Center® (NCLC®) helps build family wealth for low-income and other disadvantaged people in

the U.S. by offering advocacy expertise through publications, policy analysis, research, litigation services, and training. www.nclc.org

163

Note: Additional loss mitigation options may be available under the National Mortgage Settlement or through private litigation.

Available loss mitigation

GSE loan

Repayment plan

Forbearance

GSE HAMP (no

principal reduction

as of 1/20/2014)

Standard/

streamlined mod

Short-sale/deed-

in-lieu

HAMP servicer

HAMP mod

Tier 1

Tier 2

Second Lien Mods

(2MP)

Unemployment/ Disaster

Forbearance

HAFA (short sales,

deeds in lieu)

Non-HAMP servicer

Repayment

Forbearance

Loan modification

Short-sale or deed-in-

lieu

Government-insured: FHA, RHS/ USDA/FmHA, VA

Repayment

Forbearance

Non-HAMP loan modification

Program version of HAMP

FHA loans include option for partial claim

FHA, VA loans allow for assumption

VA loans include option for repurchase by government

Short sale/ deed-in-lieu

164

How loans are modified

Principal balance adjusted

Fees waivedArrearages capitalized

Principal forbearance (non-interest

bearing balloon)

Principal reduction

Interest changed

Interest reduced,

permanently or temporarily

Converted from

adjustable to fixed or vice

versa

Amortization term changed

(usually extended)

New obligor substituted

165

Possible Mediation Outcomes

Mediation Fails; Foreclosure

Restarts

Agreement Reached in Mediation

Homeowner Keeps House

Refinancing/ Loan Paid Off

Reinstatement/ Repayment Agreement

Modification

HAMP modification

Non-HAMP modification

Homeowner Loses House

Short Sale Deed-in-Lieu

166

Helping Alabama Homeowners Face ForeclosuresMortgage Trust Holds pool of loans; issues certificates...

Documents

Transcript of Helping Alabama Homeowners Face ForeclosuresMortgage Trust Holds pool of loans; issues certificates...